Is no credit score worse than a bad credit score?

Some consumers have no credit at all, and that’s not good either.

Key points

• Bad credit can be a turnoff for lenders.
• Often no credit has a similar effect.
• You can build credit with a secured credit card.

Your credit score says a lot about you. If that number is strong, it sends the message that you are a relatively low-risk borrower. Because of that, you’re more likely to get approved to borrow money, whether it’s in the form of a car loan, personal loan, or mortgage.

If your credit score is low, it sends the opposite message: that you are a riskier borrower. With bad credit, you may be denied a loan when you need one. Or, you can keep a higher interest rate on any loan you end up taking out.

Clearly, a higher credit score is preferable to a lower one. But what if you just don’t have a credit score? If you’re new to the business world and have never had bills in your name, that may be the case. But unfortunately, it could result in a world of difficulties.

The problem of not having credit

Clearly, having no credit score is not the same as having a low credit score. But in practice, both can have similar consequences.

If you have no credit history at all, lenders will have no way of measuring how risky you are as a borrower. And therefore, you may end up being denied for different loans as a result.

Not having a credit score at all could also make it difficult to rent a house. Landlords commonly check prospective tenants’ credit before allowing them to sign leases. If you have bad credit, you may be denied a rental, because the landlord may not want to take a chance on you. But if you don’t have credit, you can get a similar result.

How to build credit

If you don’t have a credit score, there are steps you can take to establish a credit history—and a good one. One option is to request a secured credit card. With a regular credit card, you are given a spending limit based on factors like your credit score and income. With a secured credit card, you make a deposit that serves as your spending limit. As you charge expenses to that card and pay your bills on time and in full, it shows up as positive activity on your credit record.

You can also see if you can be added as an authorized user on a family member’s credit card. That way, any positive activity associated with that account (such as timely payments) will be transferred to your credit record.

In many cases, having no credit score at all can be just as problematic as having poor credit. If that’s the boat you’re in, it’s worth doing everything you can to establish a credit history as quickly as possible. At the same time, be sure to take steps to preserve your credit score once you’re able to establish one. That means paying all bills on time and keeping your credit card balances low once you’ve been approved for unsecured credit cards.