How is low credit score different from no credit history? Key questions answered | Mint

It is not uncommon for some people to have zero credit history. This usually happens with the students and young professionals who do not have a history of using a credit card.

Here, we delineate key differences between having low credit score and no credit score. 

A ‘no credit history’ typically happens when someone has never taken a loan, used a credit card, or engaged in any credit activity. This means there’s no financial history for lenders to evaluate.

How is this different from poor credit score?

This is not uncommon among young people who are just starting their financial careers. In contrast, a low credit score refers to the person who has used credit but has not been able to manage it well. For instance, they may have missed some of their credit card payments, defaulted on loans, or even used too much of their credit limit.

What is an unknown risk for a bank?

From a bank’s point of view, someone with no credit score is considered as an ‘unknown risk’. They simply do not have enough information to judge whether the person is financially responsible. On the other hand, someone with a low credit score is a ‘known risk’ because their credit report shows negative patterns.

What is the score range for borrowers with low credit score? 

Often times, if you have no credit history — the credit report might just state ‘no history’ or ‘not applicable’. This means you have not borrowed yet. If you have a low score, it will be somewhere in the range of 300 to 600.

As one would expect banks tend to find it easier to work with someone who has no credit history instead of someone with bad credit. That is because while there’s uncertainty with no history, at least there’s no evidence of risky behaviour.

What is better: no credit history or low credit score?

It is better to have no credit history instead of low credit score. As pointed out above, lenders are more comfortable lending to those borrowers who have no credit history.   

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.