Is it better to have bad credit or no credit?
So which scenario is worse — not having any credit or having bad credit? “Neither is good,” says Greg Reeder, CFP, a financial advisor with McClarren Financial Advisors in State College, Pennsylvania. However, “A poor credit score is worse,” he says. “If you have no credit, you can start from the ground up.
With a good credit score, you will get more approvals with better interest rates. This is because lenders trust that based on your credit score, you can manage your debt. Your credit score even goes further than financial lenders.
In a nutshell, you're better off with no credit history at all than a bad credit history and score. That said, both situations have their own challenges that you should be mindful of when attempting to apply for credit.
While credit is usually required to get an auto loan, it's still possible to buy a car with no credit. However, your loan options will be limited. Keep in mind, though, that having no credit is better than having a bad credit history.
Bankrate says lenders generally look for borrowers with credit scores in the 610-640 range. People with bad credit or no credit history at all may have fewer options when it comes to getting a loan. Even if they're approved, their loan may come with a higher interest rate.
But your credit score won't start at zero, because there's no such thing as a zero credit score. The lowest score you can have is a 300, but if you make responsible financial decisions from the beginning, your starting credit score is more likely to be between 500 and 700.
Having no credit score doesn't mean you have bad credit
Once you have a score, your credit habits contribute to whether it increases or decreases over time, so it's important to make all of your payments on time once you're able to get your first credit card or loan.
According to data from the Consumer Financial Protection Bureau (CFPB), as many as 26 million Americans are “credit invisible,” meaning they have no credit history.
Life without credit isn't impossible. But you'll probably have an easier time if you start building up your credit now. (In the meantime, if you're considering a bad credit loan, you'll want to check out the OppU Guide to Bad Credit Loans here.)
Whatever your reason for wondering how long it takes to get a credit score, you can generally expect it to take about six months – and usually longer to get into the good-to-exceptional credit score range.
Can paying your rent increase your credit score?
If you regularly pay your rent on time and in full, you can have your good payment history reported to credit bureaus to help raise your credit score through a rent-reporting service. Know that any rent-reporting services could require a fee for the service, which is usually paid on a monthly basis.
There isn't a set credit score that each person starts out with. Instead, if you don't have any credit history, you likely don't have a score at all.
No credit loans typically offer a few hundred to a few thousand dollars. Pay off your loan as quickly as possible. No credit loans often have short repayment periods because the loan amounts are small. If you're financially able to, you should consider paying back your loan even faster than you're required to.
The easiest loans to get approved for are payday loans, pawnshop loans, car title loans, and personal loans with no credit check. These types of loans offer quick funding and have minimal requirements, so they're available to people with bad credit.
Payday lenders generally don't look at your credit scores, but be careful — these short-term loans are often due by your next payday and may carry extremely high fees. If you need a loan quickly, another option to consider is an app that lets you borrow cash against your next paycheck.
- Review your credit reports. ...
- Pay your bills on time. ...
- Catch up on overdue bills. ...
- Become an authorized user. ...
- Consider a secured credit card. ...
- Keep some of your credit available. ...
- Only apply for credit you need. ...
- Stay on top of your progress.
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
- Review Your Credit Reports. ...
- Pay Bills on Time. ...
- Lower Your Credit Utilization Ratio. ...
- Get Help With Debt. ...
- Become an Authorized User. ...
- Get a Cosigner. ...
- Only Apply for Credit You Need. ...
- Consider a Secured Card.
“Neither is good,” says Greg Reeder, CFP, a financial advisor with McClarren Financial Advisors in State College, Pennsylvania. However, “A poor credit score is worse,” he says. “If you have no credit, you can start from the ground up.
Challenges of Living Without Credit
One of the biggest challenges of the debt-free lifestyle is paying for everything with cash. It doesn't have to be paper cash; it can be a debit card. If you're not going to borrow, it will take more time, more savings, or both to afford major purchases.
What is the lowest credit score in the world?
What is the lowest credit score possible? Generally, credit scores range from 300 to 850, making 300 the lowest possible credit score. But it's important to note that you typically have more than one credit score.
Average FICO 8 Score by Generation | ||
---|---|---|
Generation | 2022 | 2023 |
Generation Z (ages 18-26) | 679 - Good | 680 - Good |
Millennials (27-42) | 687 - Good | 690 - Good |
Generation X (43-58) | 707 - Good | 709 - Good |
The lowest score you can get with either model is 300, though past scoring models have gone lower (and aren't used so much today). According to FICO, an estimated 11.1% of Americans have a FICO score ranging between 300 and 549 as of 2019.
Because income has no impact on credit, the wealthy are just as likely to have a low credit score as the poor. The rich can miss payments, rely too heavily on credit, and open too many new accounts, all of which will lower their credit score.
Making a late payment
Your payment history on loan and credit accounts can play a prominent role in calculating credit scores; depending on the scoring model used, even one late payment on a credit card account or loan can result in a decrease.