Is No Credit Better Than Bad Credit?

So you’re finally looking into that boring credit score thing, and you’re like, “Hmm, I have no credit history. Can I borrow money? Is no credit better than bad credit? Wtf even is credit??” Or maybe you’ve missed a few Buy Now Pay Later payments and want to know how to fix bad credit. 

We know that it’s all pretty confusing, so we’re gonna go over the basics. In short, no credit is better than bad credit, but both can get in the way of your financial future 🙃

Understanding how these scores work and building them up is vital for borrowing money and… Well, life. Let’s get into it. 

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What does it mean to have no credit?

Don’t know what “credit” is? Here’s a quick explainer. 

Your credit score is a record of your borrowing and general financial history. Lenders use it to see if you’re gonna pay them back or do the old dine and dash 👀

It’s three digits decided by how ✨sensible✨ you are with your money. The score ranges from 300 to 850. 

If you’re like, “Well, that’s great. But I have no credit score, what does that mean???” Chill. This is also known as being credit invisible. And if you’re scoreless, you’re not alone. Almost one in five Americans share your pain. 

Don’t worry. There are ways you can get a credit score. We’ll go over that shortly.

Wondering why you don’t have credit? Here are a few possibilities:

• You’ve never paid any bills in your name
• You’ve never borrowed any money from a financial institution (or did ages ago)
• Your credit file is wrong

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Effects of having no credit

If you don’t have credit, you’ll find it harder to get loans, mortgages, and other products where you’re borrowing money. 

You might be able to get a cell phone contract, but it’ll be more limited than if you had good credit. And you may be able to get a credit card, but the interest rate will likely be higher.

It can also affect your career. Want a job that involves huge amounts of influence (think security clearance, not TikTok)? Interested in a career where you’re handling big money? 

Well, bad news. Companies might only hire people with good credit. That’s because they may think you’ll accept bribes if your credit score is low or nonexistent. Because apparently corruption is rife in banking and politics. ~Who knew??~ 💀

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Does having no credit affect your credit score?

While credit scores don’t start from zero, you’ll have a low score until you start building it up. 

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How to start building credit when you have no credit

Thankfully, you can get yourself on the money map pretty easily with these two tips:

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Become an authorized user

Is your mom or sister good with money? Becoming an authorized user on a card with someone with a positive credit history is great for boosting yours. It’s a low-risk way to build credit and borrow cash. 

But if they’re not good with money, their credit score mistakes could reflect on yours, so choose your money battle partner wisely 👀

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Get a secured credit card

These cards are great for boosting your score and getting you used to borrowing. They typically allow you to build credit safely using a security deposit 💅

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What is bad credit?

Bad credit is when big banks think you’re a naughty liability. AKA you have a bad history with paying your bills on time. ~Oh nooo~ 

On a serious note, a bad credit score can get in the way of a lot of things, from renting to getting a loan 😩

Possible reasons for bad credit include:

• Identity theft
• Mistakes on your credit file
• Closing a well-established account/card
• Missing payments or paying late
• Overusing credit—try to stick to <30% of available credit
• Never using credit (lmao, really), so lenders have no idea if you’re reliable or not 🤡
• Applying for too many credit products at once—these leave marks on your credit file
• An addiction to buy now, pay later (BNPL), where you ignore the pay later part 💀

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What is a bad credit score?

Wondering what is bad credit? 

As you know, your score starts at 300. Anything from 300 to 579 is currently considered “poor” by Experian. 670 or higher is considered “good.” So if you thrive on external validation for the dopamine, aim for 670+. 

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How to fix bad credit

If you’ve got a bad credit score, we promise you can fix it with some effort 🤠

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Ensure your score is right

First, check if your credit score is correct through Experian, Equifax, or Transunion. You might spot a missed payment you know you made or an account you thought you closed a decade ago. If there’s an issue, drop the credit score company an email. 

You should also check your details are up-to-date on your financial products, like your name and current address. Lenders search your file to ensure you are who you say you are, so having an old address can mess up their checks. 

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Don’t apply for credit too often

Typically, when you apply for credit, lenders check your credit history. This is called a hard check, which stays on your file for two years. If you keep applying to stuff, your credit score will take a hit. So apply wisely. 

Credit card eligibility calculators can help you apply to things you’re more likely to be accepted for. And you might even find you’re pre-approved for some. 

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Check your credit utilization ratio

Introducing more boring finance speak 😴 Your credit utilization ratio is literally just how much of your available credit you’re using. If you’re using too much of your credit limit every month, banks start to think you’re a bit desperate 😬 It’s one of the most important factors in your score.

If you have a $500 credit limit and you’re using $250, that’s a 50% ratio. Ideally, you want to keep it under 30% for your score to benefit. That’s $150 or less of the $500 limit. 

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6 Ways To Build Credit

Wanna know how to build credit? Let’s get into a few great tips.

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Increase your credit limit (but don’t use it)

We just mentioned your credit utilization ratio, and one way to bring that down is to get more credit. See if any of your current lenders will increase your credit limit. 

You could also apply for another card or loan, but too many applications can damage your score, so tread carefully.

A key way to improve your score is to limit how much you use your credit (and pay your balance on time). While it’s nice being able to access more cash, your credit score will look a lot better if you resist it 🙃

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Leave accounts open

If you’ve got a credit card or account with a solid payment history, leave it open unless it has big yearly charges. 

Why? Because these accounts bump up your credit utilization ratio and your average account age. A FICO study found that people with scores of 800+ had accounts over 10 years old. A longer account and credit history can boost your score.

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Use a credit card for small purchases and pay them off on time

You don’t have to spend thousands to get a good credit score. Simply buying small things on credit and paying them off on time (or early) reflects well on your score. That could be anything from gas to groceries or your Taco Bell habit 🌮

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Pay bills on time

Your payments make up the largest part of your score, so frequently forgetting to pay bills can really f*ck up your score. Missed payments stay on your file for seven years, but over time they influence your score less. 

If you miss a payment by a couple of days, paying as soon as possible can stop it going onto your file. AKA don’t bury your head in the sand with the shame 🙃

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Use different types of credi

Using different credit types shows lenders you’re responsible with various credit lines. HINT: Check out Cleo Builder¹.

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Use a credit boost service

Some companies offer a service where they register bills you’re already paying with credit reporting agencies. 

Examples include Experian’s Boost, which reports your cell phone and utility bills. And Rental Kharma reports your rent payments. After all, why shouldn’t your regular payments boost your credit score? 

Gen Z spends an average of 37.3% of their income on housing. That deserves some credit, right?? (Putting ourselves in dad joke jail) 🤪

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No Credit vs Bad Credit: Conclusion

While having no credit may not be quite as impactful as bad credit, they’re both hurdles you’ve gotta get over for financial freedom. Luckily, it’s totally doable with a little effort.

_{1 The Cleo Credit Builder subscription offers saving goals, hacks, challenges, APY on savings, credit score insights, cash advances if eligible, credit history, and priority support.}

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