Is no credit score better than low credit?

Back to financial education | Credit & debt

October 6, 2023

6 min read

Having a high credit score makes it easier to get approved for loans and credit cards. But having no credit or low credit may limit the financial opportunities you can qualify for.

In this article, we’ll explain why having no credit at all is slightly better than having low credit. We’ll also offer tips that can help you establish a positive credit history.

Here’s what we’re going to cover:

The difference between no credit and low credit
Is it better to have no credit or low credit?
Turning no credit into good credit
Oportun: Affordable lending options designed with you in mind

Key takeaways:

Having no credit means that you don’t have enough credit history yet to generate a credit score. This makes it harder for lenders to tell if you are likely to repay your debts on time.
Lenders typically don’t like loaning money to people with credit scores below 670. A low credit score tells lenders that you have a history of not making payments on time or taking on more debt than you can afford.
There are ways to establish a credit score for the first time: By becoming an authorized user on another person’s credit card, applying for financing with a cosigner, taking out a credit-builder loan, or getting a secured credit card.

The difference between no credit and low credit

Both situations—no credit history at all or a low credit score—can limit your financial opportunities. What’s the difference? No credit history means the credit bureau doesn’t have a record of your credit behavior. Thin, or low credit, means the bureau has only a small amount of information or the information they have is not favorable.

What are credit score and credit history?

Your credit score is a number between 300 and 850 that gives creditors an idea of how likely you are to make payments on time. Your credit score is based on your credit history, which includes what credit accounts you have open, what balances you owe, your payment history, and more. There are three major credit bureaus in the United States that gather information about your experience with credit to create your history and generate your scores.

What does it mean to have no credit?

If you’ve never used a credit card or taken out a loan, you may not have any credit history. You typically need to have a credit account open for three to six months before Experian, one of the major credit bureaus in the U.S., can generate a credit score for you. Having no credit history nor credit score means there’s not a financial record about you with that credit bureau.

Having no credit history is like having no job history on your resume. You may be an excellent worker, but it’s hard to convince employers to hire you if you don’t have any past experience or references to show them. In the same way, if you have no credit history, lenders can’t tell whether you’re a good credit risk. Without this information, they may not want to approve your application for a loan or credit card.

Is it bad to have no credit?

Having no credit isn’t ideal, but it’s a manageable situation. If you want to get approved for a loan or credit card without a credit history, you’ll need to find a lender who is willing to take a chance on you.

What is a low credit score?

A low credit score comes from having either very thin credit history or a negative record of credit behavior. If your credit score is in the fair or poor range, it may be because you haven’t made all your payments on time in the past, you’re using a high percentage of your available credit, or you’ve had to declare bankruptcy.

A low credit score is one that falls between 300 and 669 on the FICO scale. FICO rates credit scores like this:

300-579: Poor
580-669: Fair
670-739: Good
740-799: Very good
800-850: Exceptional

Lenders often don’t want to approve your loan or credit card applications for people with low credit scores. That’s because they’re concerned you won’t pay them back on time. If your application does get approved, you may be charged higher interest rates because of your low credit score.

Is it better to have no credit or low credit?

Having no credit at all usually means there is nothing negative in your credit history. In this case, you need to show lenders that you are creditworthy. You can do this by establishing a positive credit history through the steps outlined below.

A low credit score can be more difficult to fix. That’s because any negative marks in your credit history can affect your credit score for seven to 10 years. You can begin to improve your credit score by paying down your debt and making all your payments on time. But even if you manage your credit perfectly going forward, your negative credit history may slow your progress.

What is creditworthiness?

Lenders consider a borrower creditworthy if they believe that person can be trusted to make payments on time.

Turning no credit into good credit

How do you earn a good credit score? The most important thing you can do to establish or improve your credit score is to make all your payments on time. This is the best way to show lenders that you can handle credit responsibly.

Here are some more suggestions for establishing credit for the first time, or building a positive credit history:

Become an authorized user

An authorized user is permitted to use another person’s credit card account. To become an authorized user, you will need to ask a friend or family member who has good credit to add your name to their account. That person’s positive credit activity can then help build your own credit score. But be careful, if they have negative credit activity, it can hurt your credit. And your credit behavior, either good or bad, will help or hurt their credit.

Apply with a cosigner

A cosigner is someone who adds their name to your credit application. Having a cosigner with good credit increases your chances of qualifying for a loan or credit card. If your application is approved, your cosigner will be responsible for making payments if you fail to do so.

Apply for a credit-builder loan or secured credit card

There are a couple different structures of credit-builder loans, all are generally designed for people with low or no credit scores and the lender reports your payment behavior to credit bureaus.

Secured credit cards are also a good option for establishing a positive credit history. With a secured credit card, the deposit amount is the same as the card’s credit limit. There is no risk to the lender because you are essentially using your own money as credit. The advantage for you is that your regular, on-time payments can improve your credit score.

Apply to a lender who has no credit history requirements

While many lenders have strict requirements about credit history, some do not.

Oportun: Affordable lending options designed with you in mind

Now that you understand the difference between no credit, low credit, and strategies for establishing credit, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about: