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Bad or No Credit: What's the Difference?

Posted by Jeff Martin - 29 March, 2013

No Credit or Bad CreditThere are important differences between no credit and bad credit scores. The distinguishing elements between these two situations contribute to the differing strategies for improving and building upon your credit. Before you can improve your credit score, you first have to understand whether you are dealing with a limited credit history or a negative credit rating.

What is Bad Credit?

Bad credit is a poor credit rating, or score, that falls below 620 points. Some credit agencies, however, will not label your credit score as “bad” unless it is below 580 points. Bad credit scores can be the result of a number of contributing factors in your financial and personal history.

There are several circumstances that can negatively affect your credit score. Defaulting on a loan, nonpayment of utilities, evictions due to nonpayment of rent, and unpaid credit card bills can all lead to a bad credit rating over time.

What is No Credit?

No credit score is the result of not having a history of credit usage, like loans and credit cards. When you haven’t had credit cards, loans, utilities, or leases in your name credit reporting agencies will not have enough information about you to generate an informative credit score. Even though no credit means you haven’t developed a financial reputation based on nonpayment or credit denial, it can still stop lenders from approving financing you need.

Improving Bad and No Credit

The ways to improve both bad and no credit are similar, with one primary difference. First, check your detailed credit report to figure out whether you have a bad credit score or a lacking credit history.

If you have bad credit, the first step in fixing it is starting to repay your debts. As you pay off any outstanding or defaulted bills and loans that appear on your credit report, your credit will slowly improve. This strategy for credit improvement can be combined with the technique for building good credit from no credit, as a way of expediting the improvements.

Building up credit when you have no credit is relatively simple, if you know the avenues to explore. Secured credit cards and financing options tailored to giving approval to those with limited credit histories can help establish a positive credit rating. Before applying for any loans or lines of credit, be sure you can afford the monthly payments easily based on your minimum income.

No credit and bad credit can both impede your ability to make important financed purchases, like a car or a home. Healthy account activity, timely payments, and an awareness of your spending habits can all help improve your credit situation.

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Topics: Car Financing


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