Contrary to what some might think, having “no credit” doesn't actually mean that you have no credit. In fact, there is no way you can start with a score lower than 300. "Having no credit" translates to someone having zero active credit accounts that have been reported to any credit bureau. Banks and other lenders can't accurately predict how risky it is to lend you money when you don't have any credit history. It's almost like having a high school transcript without any grades. How will the college admissions department know your level of academics? As a result, banks and lenders are less likely to lend to zero creditors at all. So, if you have no credit, there are easy (and free) ways to fix that. Typically the main reasons you may have no credit are:
You've never been listed on a credit account.
You have only recently applied for credit or have been added to an account.
You haven't used any credit in the last six months or more.
What does "bad credit" mean?
Having bad credit is not the same as having no credit. A bad credit score is often defined as having a credit score that is lower than 580. If you have bad credit, it may be because you defaulted on a loan, made several late payments, or declared bankruptcy. Not meeting your credit obligations can lower your score and make you appear as a credit risk to lenders.
What are the ranges of credit scores?
When analyzing FICO credit scores, the range goes from 'very poor' to 'exceptional.' Here's a breakdown of each label and range:
Exceptional = 850-800
Very Good = 799-740
Good = 739-670
Fair = 669-580
Very Poor = 579-300
According to the Fair Isaac Corp. (FICO), the average American credit score falls under the "good" range. However, it's worth mentioning that whether or not a credit score is truly "good" is left up to the lender's discretion and the credit bureau. When evaluating your credit score, keep in mind that other factors play a substantial role as well. This can include payment history, amounts owed, credit history length, credit mix, and new credit. Rest assured, at One, you're more than just a number; we utilize advanced machine learning as well as other factors to look beyond your three-digit score to decide.
How "bad credit" can impact you
Having bad credit can make you a risk to mainstream lenders. Mainstream lenders are commercial institutions such as banks, credit unions, and savings and loans companies. Many traditional lenders have cut-throat criteria when they're trying to determine who qualifies for lending. As a result, you'll be hard-pressed when trying to qualify for a traditional loan if your credit is bad. This can cause people to seek unfair or predatory loans from less reputable sources. A bad credit score also means that you will get a higher interest rate compared to someone with a good credit score.
A good example of this is with a mortgage rate. Someone with a credit score of 770 may get an interest rate of 2.99% APR, but someone with a credit score of 650 may be offered a 3.80% APR. A bad credit score doesn't just affect your mortgage rate; it can also affect your ability to get an apartment. Many landlords run a credit check on potential renters during the application process because it helps them gauge whether or not a potential tenant will pay their rent on time or at all. So if your credit score isn't good to excellent, you can lose out on getting an apartment, or your new landlord may require someone with better credit to co-sign with you for assurance. Many utility providers also run your credit history to learn about your payment history when setting up a new utility account. It can get even more stressful if you have a poor payment history or bad credit score; utility providers may ask for a deposit before turning on the service.
How "no credit" can impact you
Having no credit can be quite challenging, especially when it comes to renting or owning a home. Landlords and property management companies expect renters to provide their credit scores before applying for a renter's application, so having free access to your credit score in addition to free credit building is crucial. Unfortunately, it's the same when applying for a mortgage. Banks will only feel comfortable lending to someone who has a solid credit history. Therefore, not having credit can stop your foot from getting in the door of a new home. It sounds scary and overwhelming but doesn't worry; there's a simple solution.
Fixing your credit issues is the first step in the right direction towards financial freedom. It can sound daunting and time-consuming, but it's not as bad as you think. By adding Credit Manager to your One account, you'll get ongoing free access to your credit score along with personalized insights. That means you'll know exactly what you're doing right and where you can improve. No matter if you're on your way to building credit or need some help rebuilding, Credit Builder is here to help. You'll be able to build up your credit history with no fees, no credit checks, no extra application, and no account minimums! For more information about how to build up your credit, check out One's Credit Builder.