Is No Credit Score Worse Than a Poor Credit Score?

Some consumers have no credit at all -- and that's not a great thing, either.

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

If your credit score is poor, it sends the opposite message -- that you're a riskier borrower. With poor credit, you may be denied a loan when you need one. Or, you may get stuck with a higher interest rate on whatever loan you end up taking out.

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

The problem with not having credit

Having no credit score clearly isn't the same thing as having a poor credit score. But in practice, both might have similar consequences. 

If you don't have any sort of credit history, lenders won't have a way of gauging how risky a borrower you are. And so you may end up getting denied for different loans as a result.

Not having a credit score at all could also make it difficult to rent a home. Landlords commonly run credit checks on potential tenants before agreeing to let them sign leases. If you have poor credit, you may be denied a rental, because a landlord may not want to take a chance on you. But if you have no credit, you may 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 favorable one at that. One option is to apply for a secured credit card. With a regular credit card, you're 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 on that card and pay your bills on time and in full, it gets recorded as positive activity on your credit record.

You can also see if it's possible to get 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 transfer onto your credit record. 

Not having a credit score at all could, in many cases, be just as troublesome as having poor credit. If that's the boat you're in, it pays to do your best to establish a credit history as quickly as you can. At the same time, make sure to take steps to preserve your credit score once you're able to establish one. That means paying all bills in a timely manner and keeping your credit card balances low once you're approved for unsecured credit cards.