Is no credit score worse than a bad credit score?

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Some consumers have no credit — and that’s not a good thing either.

Key points

  • Bad credit can be a drag on lenders.
  • Often, no credit has a similar effect.
  • You can build up credit with a secure credit card.

Your credit score says a lot about you. If this number is high, it sends the message that you are a relatively low risk borrower. Because of this, you may be more likely to be approved to borrow money, whether in the form of a car loan, personal loan, or mortgage.

If your credit score is bad, it sends the opposite message: you are a riskier borrower. With bad credit, you can be denied a loan when you need it. Or, you may end up with a higher interest rate on whatever loan you end up taking out.

Obviously, a high credit score is better than a low score. But what if you just don’t have a credit score? If you are new to the business world and have never had invoices in your name, this may be the case. But that could, unfortunately, lead to a world of difficulty.

The problem of not having credit

Having no credit rating is clearly not the same as having a bad credit rating. But in practice, both could have similar consequences.

If you have no credit history, lenders will have no way of assessing your risk as a borrower. And thus, you risk being refused different loans.

Having no credit score at all could also make it difficult to rent a home. Landlords usually do credit checks on potential tenants before agreeing to let them sign leases. If you have bad credit, you may be denied a rental because a landlord may not want to take a risk with you. But if you don’t have credit, you can get a similar result.

How to build up credit

If you don’t have a credit score, there are steps you can take to build a credit history – and a good record. One option is to request a secure credit card. With a regular credit card, you have a spending limit based on factors like your credit score and income. With a secured credit card, you make a deposit which serves as your spending limit. When you charge expenses to this card and pay your bills on time and in full, it is recorded as positive activity on your credit file.

You can also see if it’s possible to be added as an authorized user on a family member’s credit card. This way, any positive activity associated with that account (like timely payments) will transfer to your credit report.

Having no credit score at all could, in many cases, be just as troublesome as having bad credit. If that’s the boat you’re in, it’s worth doing your best to establish a credit history as quickly as possible. At the same time, be sure to take steps to preserve your credit score once you are able to establish one. This means paying all bills in a timely manner and keeping your credit card balances low once you’ve been approved for unsecured credit cards.

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