Credit is one of those concepts that’s mind-boggling for many consumers. One day your score is rated as “Good” and just months later it’s knocked down a few points for seemingly no reason at all. You’ve made your bill payments on time, maybe you even exceeded the minimum payment on your credit card bill, but perhaps you closed a line of credit and suddenly, your score suffers. The point is, credit scores are a bit of an enigma to figure out and getting into a bad debt cycle can be seriously troublesome.

One of the most confusing debates in the realm of credit is having no credit vs. having bad credit. Hint: Neither situation does much good for your credit score’s standing. What’s the difference? Which is worse? In this post, we’ll clear up the confusion regarding lacking credit and bad credit to help you better understand how this system works.

What makes up your credit score?

Before we discuss the differences between having no credit and having bad credit, it’s important to understand what makes up your credit score in the first place. There are two different scoring methods used to report credit scores: FICO and VantageScore. The three main credit reporting bureaus Equifax, Experian, and TransUnion use the VantageScore method to report scores.

Here’s how FICO and VantageScore base their credit scoring:

FICO Score:

  • Payment history (35%)
  • Level of debt (30%)
  • Age of credit history (15%)
  • Types of credit accounts (10%)
  • Credit inquiries (10%)


  • Payment history (40%)
  • Age and type of credit (21%)
  • Credit usage (20%)
  • Total debt (11%)
  • Credit behavior and inquiries (5%)
  • Available credit (3%)

As you can see, both credit scoring methods consider credit age and debt in order to rate consumer credit. But which is more important than the other, and how do you establish credit without having an existing line of credit open?

Unfortunately, the answer really isn’t that simple because both negatively impact your score and can translate to other personal and financial problems when people run a credit check on your account. A lack of credit history could make your application for a rental less appealing to landlords, for example. And bad credit can cause lenders to feel reluctant to approve you for a new line of credit.

According to the rates listed above, the level of debt is weighed more heavily on FICO scores while credit age is prioritized on VantageScores. The point is: both matter and it’s entirely possible to recover from either situation if you put the proper plan in place. Here are a few basic tips to help you do just that!


To build your credit age…

  • Start with a secured credit card or a student credit card
  • Become an authorized user on your parent’s credit card account (so long as they have a good payment history)
  • Consider opening a credit-builder loan
  • Ask for someone to co-sign on a loan

To recover from bad credit…

  • Keep up with monthly bill payments by enrolling in automated payment programs
  • Limit credit card usage while you’re focused on paying off debt
  • Think about consolidating your credit card debt to make payments easier
  • Dispute credit report errors if you find them

Final notes

Whether you’re suffering from no credit or negative credit history, improving your credit score should certainly be among your top financial priorities. Using the tips above, you’ll be on your way to better credit in no time.