OnPath Credit Union

Is Having No Credit Worse Than Having Bad Credit?

It depends on how bad your credit is, but in most cases no. Having no credit doesn’t make life easy, but it’s often preferable than having to dig yourself out of a bad credit hole.


Are the Effects of Having Bad Credit and No Credit the Same?

No. While there is some overlap, people with bad credit and those with no credit will be treated differently by lenders, landlords, utilities and anyone else who checks their credit history.


The Effects of No Credit

You’re an unknown quantity to lenders when you have no credit history. You could be responsible. You could be irresponsible. You might be somewhere in the middle. Lenders just don’t know.

Uncertainty is inherently risky. You haven’t earned a reputation for reliability, so you won’t qualify for the best rates awarded to the lowest risk borrowers. But you also haven’t earned a reputation for being a credit risk.

Young adults who are moving out of their parent’s house and trying to get an apartment or sign up for utilities most frequently deal with no-credit challenges. Landlords might be hesitant to rent to you if you don’t have a credit history. If they do rent to you, they may require a higher deposit or a co-signer. They may even want to see pay stubs to verify you are gainfully employed. Utility companies will also likely require you put down a larger deposit when you sign up for gas, power or internet.

When you try to get a credit card, auto loan or home loan, you might have trouble getting a low rate – if you qualify at all. Having a steady income from a job you’ve been at for several years can help assuage lender concerns, but it doesn’t entirely negate having no credit history.


How to Establish at Least Some Credit

To establish a FICO score you need to have a minimum of one account that’s being reported to credit bureaus for at least six months.

If a business doesn’t consider itself to be a lender, they generally won’t report their transactions to any of the credit reporting agencies. Most landlords, insurers and utilities usually don’t report to credit bureaus, so even if you pay your rent, premiums and utilities on time each month you might not be building any credit. However, they usually will report failures to pay.

The lowest hanging fruit for improving your credit is a credit card. Credit cards do report customer activity to credit bureaus.

You can also try to qualify for a loan, like an auto loan, mortgage, personal loan or a student loan. Qualifying for those can be difficult with no credit, and the rates you’re eligible to receive will reflect your non-existent credit history.


What’s the Difference Between a VantageScore and a FICO Score?

The VantageScore was an invention of all three of the primary credit bureaus (Equifax, Experian and TransUnion). The FICO score was named after the firm that first developed it in the late 1980s – Fair Isaac Corp.

In order of importance, FICO and VantageScore ratings are based on:

  1. Your repayment history
  2. How much you owe as a percentage of your credit limits (also referred to as credit utilization)
  3. The age of your credit history
  4. How varied your types of credit are
  5. Whether you have any new debts

Both VantageScores and FICO scores look similar (although they used slightly different scales until recently). The latest VantageScore and FICO Score both rely on a 300- to 850-point scale. There are different versions of both scores, and the way they are weighted is periodically updated.

Both essentially do the same thing; they help lenders determine your repayment reliability. The scoring method a prospective lender chooses to make their decisions on your credit worthiness is up to them.  


What’s the Effect of Bad Credit?

While having no credit isn’t ideal, having bad credit generally has worse effects and takes longer to fix. Having no reputation is generally better than having a bad reputation.

You might still be able to qualify for certain types of loans or a credit card, but lenders will want to charge more interest. They may also curtail your credit limit.


Building Credit and Repairing Credit Isn’t an Impossible Task

You might be surprised at how quickly you can begin repairing your credit or building good credit if you currently have no credit history. A number of products offered by OnPath Federal Credit Union, like our auto loans, mortgages, credit cards, Credit Card Balance Transfer or debt consolidation loans, can help Louisiana banking customers improve their credit situation.

Give us a call today at 800.749.6193 to learn how we can help.