There is a difference between no credit and bad credit, though they can have the same impact on your life. And in both cases, you want to build good credit to be able to access a full range of financial services. But what credit scores are considered good and bad, and how does a lack of a credit score look to lenders?
No credit means that when someone pulls up your credit report, you have no credit history. A very small number of people have no credit because they rely exclusively on cash and debit cards. A tiny minority of these cases could write a check to buy the apartment building but are unable to rent an apartment, because the credit check used to determine if they can pay the rent will come up with a red flag.
All of us start off with no credit and a blank credit report at the start of our adult lives. It is easy to end up with bad credit if you sign up for a credit card and miss a payment. However, creditors look at bad credit as if you have bad credit, because you don’t have a good credit history. In short, a lack of a credit score or credit history is treated the same as having bad credit.
However, it doesn’t mean you have a credit score of zero. That’s not possible. Credit scores range from 300 to 850. Yet many businesses respond to no credit as if you have bad credit.
A credit score between 300 and around 580 is considered bad. A credit score of 580 to around 670 is considered fair credit. When your credit score is in the 500s, you are classified as having bad credit but can qualify for credit. You’ll pay a higher interest rate, fees or both when you secure a loan. You can repair bad credit if you make your payments on time and in full. You can improve your credit score over time if you don’t increase your debt load or credit to income ratio, and avoid incidents that hurt your credit like going into collections or filing bankruptcy.
Both people with no credit and bad credit should consider no credit checks loans. The lenders offering these loans tend to base the loan on your income or the value of the item you’re offering as collateral for the loan. When you take out one of these loans, paying it back on time and in full will improve your credit score. A side benefit of utilizing loans like this is that it mixes the various types of credit you have. For example, you may benefit from taking out an installment loan instead of maxing out your credit card. If you have no credit, taking out a loan and then paying it back will give you the good credit score you want.
A credit score over 670 is generally considered good. A credit score between 740 and 800 is considered great. Very few people have a credit score over 800, though in theory, your credit score could be as high as 850. Most credit scores fall between 600 and 750.
Good credit scores help us in a number of ways. Regardless of whether or not you think it is fair, a good credit score can lead to lower insurance premiums. If you’re applying for jobs that require a degree of trust like working with cash, you’re considered ineligible if you have bad credit.
No credit is just as bad for loan applicants as a bad credit score. However, the same tactics that allow you to improve your credit score help you establish a good credit history. And there are loans available whether you have bad credit or no credit, because they don’t judge you based on your credit score.