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No Credit vs. Bad Credit: What's the Difference?

A lot of folks think that having a high credit score is the key to unlocking everything they need in life: a car, a house, a pontoon boat. (Okay, maybe not that last one.) They also think that having a low credit score will limit their ability to get the things they need. But both kinds of thinking are missing the forest for the trees.

Simply put, having a high credit score means you’ve built up a history of borrowing scores of money (pun intended) from lenders or banks. Instead of going higher, we want you to consider going lower. Yes, you heard that right. Go so low, in fact, that your credit score disappears completely. Sound crazy? Not if you're looking to gain financial peace and build wealth!

Let's start by defining some terms to figure out just how different low score and no score are.

What Is a Credit Score?

Contrary to popular opinion, a credit score is not a measure of how financially responsible an individual is or isn't. Instead, a credit score is a three-digit number that measures how much debt follows a particular person around for a specific period of time.

Banks and lenders will use this number to decide if people qualify for a loan and to determine what interest rate to give them. They will not look at things like spending habits, bank account balances, retirement savings or emergency savings.

What Is a Low Credit Score?

According to FICO, a low or poor credit score can fall somewhere within the range of 300–­579.1 

You might be thinking, How do I get a bad credit score? Well, a number of things can knock your credit score down a few rungs, and each should be avoided at all cost. Not because they negatively affect your credit score (more on that later), but because they indicate you have a history of mishandling money regardless of your current credit score. Some examples of that kind of behavior might include:

  • Borrowing more than 30% of your available credit against an existing account.

  • Routinely missing or making late payments on utilities, credit card statements, student loans or a mortgage.

  • Letting an account slide into collections or filing for bankruptcy.

So, when creditors look at an applicant's record and see this type of record following a person around, they will immediately view them as a risk and may not give them a loan as a result.  

Yes, it's true that having a poor credit score can prevent you from borrowing money from a lender so you can pay for big-ticket items like a home or an automobile. And it can also affect the interest rate a lender gives you.

But instead of focusing on how you're going to bring your score up to a higher number in the name of better interest rates, imagine what would happen if your credit score went away completely.

Let's see what that would look like . . .

What Does It Mean to Have No Credit Score?

If a person has no active credit score, it doesn’t mean they borrowed too much money, declared bankruptcy, or possess a credit score of zero. In fact, having a credit score of zero is not even possible! One of the lowest scores ever seen by the National Foundation for Credit Counseling was 425.2 And that consumer had already declared bankruptcy and was delinquent with several creditors.

There are several reasons you might be one of the 26 million Americans that the Consumer Finance Protection Bureau considers "credit invisible"—meaning you have no credit history with one of the three nationwide credit reporting agencies.3 Here are just a few of the most common ones:

  • You haven’t borrowed money in at least two years.

  • You've never been listed on an active credit account.

  • You've only recently applied for credit.

Having no credit score is also known as having an “indeterminable” credit score because banks and lenders can't accurately predict how risky it might be to lend to you, making them less likely to do so.

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That's it. That's all that can happen without your credit score. You may be less likely to qualify for a loan from a lender.

A lot of people treat their credit score like their Social Security number—as something that defines them. Well, unlike a Social Security number, if you lose your credit score completely, you do not lose your identity. Instead, you lose, well, not a whole lot as it turns out.

So, what's the upside? Imagine a world in which you save for things and pay for them up front instead of relying on banks to float the money your way first. Instead, you play the role of the bank, paying yourself for the purchases you want to make in the future. You wouldn't be making monthly payments to creditors, so your income would be freed up to save, invest, or give generously. And you wouldn't be paying any extra interest, so you'd be saving hundreds or potentially thousands of dollars in the long run.

Sounds pretty good, doesn’t it?

What's Better?: A Low Credit Score or No Credit Score

Turns out that one of the wisest things you can do for yourself and your family is lose your credit score. It means there’s absolutely zero chance you’re currently in debt or at risk of slipping into debt anytime in the near future.

Every day, tons of people play the credit score game, only to lose by sliding deeper into debt—they borrow more money than they can handle just to increase their score.

It's kind of like a casino: You might win a hand or two every now and then, but at the end of the day, the house always wins. You want to play a different game entirely: the game of financial peace, where you win every time.

Despite what many people believe, having no credit score and having a low credit score are not even remotely the same. You do not need a credit score to buy a home. You do not need a credit score to buy a car. But you do need a credit score to get buried in debt. The only question you should be asking yourself right now is, Which path do I want to choose?

By choosing the debt-free route, you're also choosing to stop borrowing money. Start saving up to pay for things with cash instead of credit—and that involves getting on a budget today. Luckily, you can check out EveryDollar, our free budgeting tool that helps people knock out debt, pay for things out of pocket, and build wealth. Pretty soon, that credit score will be a distant memory!

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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