What’s Worse: Bad Credit, or No Credit at All?

Credit problems come in all shapes and sizes. Negative credit entries, excessive debt, too many inquiries… all of them can be categorized as credit problems.

And unfortunately, any type of credit problem can ultimately cost you a lot of money – forcing you to pay more interest on loans, or perhaps even costing you a job or an apartment. While all credit problem can be serious, you may wonder whether it’s worse to have bad credit or to have no credit at all.

The Problem With Bad Credit

Bad credit can be a big problem. Lenders routinely consult your credit history and credit scores whenever you apply for a new loan or some other form of financing.

This means that if your credit reports show that you’ve had difficulty managing your credit obligations in the past, a new lender might not want to take on the risk of doing business with you. If a lender does decide to approve your application, you’ll almost certainly be charged more due to your damaged credit history as a way for the lender to subsidize their risk.

Why No Credit Is Bad, Too

Most people will argue that no credit is not as bad as poor credit and, in some cases, that position is correct. However, no credit is not “good” credit, and therefore it is still a problem. If your credit reports are blank slates, you will still probably find it quite difficult to qualify for new financing.

The truth is that there are many lenders and service providers who will be unwilling to be your credit guinea pig. This means that your lack of credit history can lead to a loan denial or higher rates just like having a negative credit history can lead to the same result. If there’s no record of your credit management, good or bad, then a lender can’t just assume you’re a good credit risk.

Why Avoiding Credit Is Almost Impossible

Some people get spooked by the credit mistakes they have seen others make. As a result, they try to live a life free from credit or off the so-called credit grid. Others may try to avoid the use of credit after making a series of mistakes of their own. Regardless, you’ll eventually have to use credit again someday, even if you don’t want to.

Don’t believe me? Try to lease an apartment, purchase a home, take out a new insurance policy, or even open a new utility account with no credit or damaged credit. If you do, you’ll most likely find that your application is denied or you’ll be charged more.

Traveling without credit can be extremely difficult. Some hotels will not accept a reservation on a debit card but will require a credit card for this privilege. Need to rent a car? The rental company may require a credit check plus a sizable deposit before allowing you to rent a vehicle without a credit card on file.

There is no avoiding the fact that your credit matters and that, one way or another, it’s going to be used to judge the risk of doing business with you. You might choose to pay cash as much as possible, and even to avoid borrowing money or applying for credit cards, but at some point your credit is going to intersect with your life.


When you have no credit or damaged credit, one of the first steps you need to take is building (or rebuilding) some new, positive accounts. Thankfully, even with no credit or bad credit, you may still be able to qualify for new accounts if you know where to apply.

First, a secured credit card can be a great way to potentially begin building some positive credit history. Because the bank will require you to secure the account with your own funds first, there’s much less risk involved for them, so you may be able to qualify for a secured credit card even with credit problems.

Another credit building option is to ask a loved one to add you as an authorized user onto an existing credit card account. Finally, you might consider checking into a credit builder loan with a local credit union.

Bad credit or no credit, either one will likely cause you problems at some point. But while building or rebuilding your credit can be challenging, it’s certainly not impossible.

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John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

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