No Credit vs. Bad Credit: They’re Not the Same!

by Su Hsiang Yu | In Financial Empowerment, MPOWER VIP | 29 January 2023 | Updated on: January 30th, 2023

No Credit ≠ Bad Credit

Having no credit or bad credit can make life more difficult. Without good credit, it’s tough to qualify for a loan, get approved for a credit card, or even rent some apartments in the United States. 

However, not having credit is not the same as having bad credit. Many international students start off with no credit in the U.S., since they don’t have any credit history in the country.

Bad credit, on the other hand, means you have a credit history but mismanaged credit in the past, perhaps by making late payments on loans or defaulting on them altogether. 

Read on for a closer look at what credit is in the U.S. and why building good credit is so important. 

What does “Credit” mean?

Credit refers to a contractual agreement in which a borrower can access money now and repay the lender gradually over time — generally with interest. Types of credit include installment loans, such as student loans, and credit cards, for example. 

The way you manage credit gets reported to the three major credit bureaus, TransUnion, Equifax, and Experian. Based on this information, the credit bureaus put together your credit report, which gives an overview of your various accounts. 

Lenders review your credit reports when considering you for a loan or credit card. Good credit means you’ve handled credit responsibly in the past. It’s a positive sign to lenders, who may be more likely to approve you for a loan and give you competitive interest rates. 

Bad credit, on the other hand, could result from late payments or defaulted loans. Negative marks on your credit report will cause you to look risky to a lender, making it more difficult to qualify for a loan or saddling you with high interest rates. 

What is a credit score?

A credit score is a numerical representation of the information on your credit report. Lenders can look at your credit score at a glance to assess your risk as a borrower. 

There are several different kinds of credit scores, but one popular one is the FICO score, which ranges from 300 to 850. 

  • If you have a score ranging from 800 or higher, it’s exceptional. 
  • If you have a score ranging from 740 to 799, it’s very good.
  • If you have a score ranging from 670 to 739, it’s good.
  • If you have a score ranging lower than 670, it’s referred to as fair (580-669) or poor (300-579) credit.

These are the factors that make up your FICO credit score: 

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Credit mix (10%)
  • New credit (10%)

Keeping your credit utilization ratio below 30% can also help your credit score. This term refers to the amount of credit you’re using compared to what’s available to you. If your credit card has a limit of US$3,000, for instance, try not to have more than US$900 owed on your card at the end of your billing cycle. 

Bad credit or no credit: Which is better when planning to stay in the U.S.?

Neither is good, actually. 

As mentioned, both bad credit and no credit can make it difficult to get approved for a loan or credit card. Plus, some landlords and even employers review your credit score when evaluating your application for an apartment or job. 

As a general rule, though, having bad credit is worse than not having any credit. If you have bad credit, that means you have negative marks on your credit report. 

Negative marks can drag down your report for years. Late or missed payments, for instance, stay on your report for seven years. That said, the impact of these negative marks can lessen over time. 

If you have no credit, on the other hand, you can start from the ground up. It may not take as long to improve your credit, since you don’t have any delinquencies dragging down your score. 

How to build credit from scratch?

To build credit, you first need to have credit. That could mean opening a credit card or applying for a student loan. Once you’ve opened a loan or line of credit, make sure to pay it off in full and on time. You can start building credit through on-time payments on your student loans and credit cards. 

Use a credit card responsibly

  • Credit cards are available for non-resident aliens. Therefore, if you are qualified to apply for a credit card, do it. From there, you can use the credit card to pay bills or subscriptions and of course buy regular things like food, clothes, etc. Definitely remember to pay your credit card bill on time and in full, which can help demonstrate that you’re a reliable borrower.

Apply for a student loan

By paying off student loans on time, borrowers can establish and build credit. Once you accumulate a good payment history, such as paying the bill off in full each month on time and staying below your credit limit, you can create a documented record of your excellent credit history. With that in hand, you can prove to lenders or landlords that you are trustworthy and reliable and can manage your loan and money well.


To sum up, no credit is not the same as having bad credit, but neither is good. Don’t be worried about not having credit when you first arrive in the U.S. as an international student. Start building your credit history and manage it with caution, so you can have an excellent credit score over time.


What is your credit score if you have no credit?

No credit means you haven’t had any credit activity that credit bureaus can use to generate a credit score for you. On the FICO scoring range, credit scores range from 300 to 850. 

Is it worse to have bad credit or no credit?

Both bad credit and no credit can make it difficult to qualify for a credit card, take out a loan, or even rent an apartment in some cases. However, it can be harder to rebuild bad credit than to build credit from scratch, since some negative marks stay on your credit report for seven years or more. In this way, having no credit is better than having bad credit, because you may be able to improve your credit significantly in a shorter period of time. 

How can I build credit with no credit history?

If you have no credit history, you can start building it by taking out a secured credit card, applying for an unsecured credit card, or financing your tuition through a student loan. Making on-time payments on your debts will help build your credit, as long as your lender reports those payments to the credit bureaus. You can also explore services such as Rental Kharma, Rent Reporters, and Piñata, which report rent payments to the credit bureaus, to help you build credit. 


Author: View all post by Su Hsiang Yu

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