No Credit Vs Bad Credit

Updated: January 02, 2024 Author:

Quick answer: No credit means you do not have a credit history, whereas bad credit means your credit history has room for improvement. Both will impact your borrowing options, but bad credit is considered worse than no credit.

    What is No Credit?

    No credit means that you do not have a credit history. The UK credit reference agencies (CRAs) can only calculate a credit score for you with a credit history. TransUnion uses “credit invisible” or “thin file” for individuals with no or limited credit history. You may be credit invisible because:

    • You are under 21
    • You are new to the UK
    • You have never used credit
    • Your credit history is too old

    Lenders will view you as a higher risk because they cannot assess your creditworthiness.

    What Is Bad Credit?

    You will have bad credit if information reported on your credit history signals to lenders that you are a high-risk borrower. High credit card debt, missed household bills or defaulted loans will all negatively impact your credit score and lead to bad credit.

    Bad credit score

    There is no universal credit score. However, a bad credit score will fall within the Poor or Very Poor score band for the UK’s leading credit reference agencies: Equifax, Experian and TransUnion. Bad credit is synonymous with having a lower credit score.

    EquifaxExperianTransUnion
    ScoreBandScoreBandScoreBand
    0 – 438Very Poor0 – 560Very Poor0 – 550Very Poor
    439 – 530Poor561 – 720Poor551 – 565Poor
    531 – 670Good721 – 880Fair566 – 603Fair
    671 – 810Very Good881 – 960Good604 – 627Good
    811 – 1000Excellent961 – 999Excellent628 – 710Excellent

    Which Is Worse?

    Having no credit and bad credit both present challenges when applying for credit – you are likely to be offered higher interest rates and a lower credit limit. Building credit from scratch is more straightforward than repairing a bad credit history. In both situations, you must start positively impacting your credit score by building a positive credit history.

    Why Is Your Credit History Important?

    Lenders usually analyse your credit history when you apply for a financial product, such as a credit card, a loan or a mortgage. With a limited or no credit history, it is difficult to determine the risk associated with lending to you. Some lenders may refuse your application or offer less favourable financial terms, such as higher interest rates.

    How Can I Improve My Credit Score?

    Improving your credit score will help you obtain more favourable finance: a lower-interest rate loan or a credit card with a higher credit limit. 

    No Credit

    No credit is typically easier to recover from. You can build your information with CRAs by having a bank account with a well-managed overdraft

    Build a credit history – start building your credit history by setting up Direct Debits for utility bills and mobile phone contracts. You can also build a credit history by registering on the electoral roll.

    Credit builder cards – after completing the above steps, the CRAs will have a credit profile for you and using a credit builder credit card can help boost your credit score further. These cards will likely have a lower credit limit and higher interest rates. To improve your credit history, make full repayments each month.

    Secured loans – if you need money for a larger purchase, another option is to obtain a secured loan where you use an asset as collateral for the loan. Similarly, you could use a guarantor to guarantee a loan if you cannot repay it.

    Bad Credit

    Repairing bad credit will depend on what is causing the bad credit. It could take less than one month to improve your credit score or take years when recovering from bankruptcy. See How Long Does It Take To Repair Your Credit for further information on how long negative information remains on your credit report.

    Monitor your credit history – use a credit monitoring app to check why you have a bad credit score.

    Assess your finances consider setting up direct debits to ensure you don’t miss a payment. If you only make minimum payments to your credit card, start paying more.

    Clear any existing debts – pay off any debts that you may have. It may be possible to shift your debt to a lower interest rate.

    Pay bills on time – Missing rent, mortgage, or credit card payments will damage your credit score. If you struggle to make payments, contact creditors to agree on a more affordable payment plan.

    Dissociate with previous financial partners – a previous partner’s debt may impact your credit score. You can remove the negative link by letting CRAs know about the dissociation.

    Limit credit applications – making too many credit applications quickly can make it look like you are too reliant on credit. A good rule of thumb is one application every 3-6 months.

    Optimise your credit utilisation – avoid using more than 25% of your available credit. You can reduce your credit utilisation by paying down your balances or seeing if your credit limit can be increased.

    Check your credit report – correct any errors on your credit report by disputing it with the relevant CRAs.  

    Whether you have no credit or bad credit use an eligibility checker that performs a soft search to establish whether your credit application will be successful. A hard search will be performed if you apply for credit.

    Summary

    Both no credit and bad credit will limit your access to credit, but by responsibly managing your finances, you can build or repair your credit history. Remember that it takes time and discipline to see the results, so don’t be discouraged if you don’t see immediate changes to your credit score.