To get a clear picture of what we are discussing here, we consider an example of 2 individuals: Raj and Kumar. Now both Raj and Kumar apply for a job where both have the same skills, but Raj is a fresher while Kumar is an experienced guy with 5 years in the industry but has been fired by his previous company. 

Now how will the recruiter choose between Raj who has no experience at all and needs some training but with a clean slate and Kumar who has the experience but with a smeared past? While the case of Raj is like a person with no credit score, Kumar 's example suits someone with a bad credit score.  

No Credit Score vs Bad Credit Score 

No credit is where a person has never taken a loan or credit card, which means that the person has no financial history for banks or lenders to analyze or base their lending decision on. While a bad credit score means the person has had a history of not being creditworthy. It could be due to reasons like missing loan or credit card payments or not paying their dues in full. These would have led their credit score to plummet. 

On the first look, it might seem that No Credit might be better than Bad credit but that might not be the case. Let's see how both can affect the lending decision of an lender. 

Choosing between No Credit Score and Bad Credit Score 

Consider this: if a person with no credit applies for a loan but has a lower income than the eligibility criteria stipulated by the bank, the loan application would be rejected as the bank has no data from which they can predict the future credit behavior of the applicant.  

There are also chances that the person may get lower amount of funds as against the amount applied for or may be asked to go in for a secured credit. Or if the person has been holding an account with the bank for a long amount of time and the bank understands his probable income and spending habits, he may be considered for credit.  

On the other hand,  a person with bad credit score may also land up in a similar kind of situation where they might be approved credit but that would again depend on the discretion of the lender.  

One cannot truly say if No Credit Score is better than Bad Credit Score as both are far away from Good Credit Score, which is what is ideal and what banks look for. It is best for people under both criteria to improve their credit score or build their credit score before applying for any loan or credit card. 

Why don't you check your credit score here, so that you know where you stand.  

Factors Affecting Loan Or Credit Card Approval 

A lender or card issuer will not just look at a person’s credit score when considering a loan or credit card application. There are many other factors that are also considered. 

1. Employment track record 

Banks do look at your employment history, i.e. your track record of where you have worked if there was any gap and reasons for the same would be probed, your growth to your current position, etc. This will help banks to determine a pattern on your job security and mentality towards your job. 

2. Your Salary/ Income 

Income of the applicant plays a big role in determining the approval of an application for credit. Salaried people are generally more preferred than self-employed when it comes to lending.  Loans like personal loans or home loans could be applied in joint mode too when incomes of both the applicants are considered. 

3. Debt To Income Ratio 

The ratio between your debt and total income must be at max 30%. This is to make sure you can pay your EMI and have enough funds even during emergencies to continue the EMI payments. 

4. Down Payment 

When you put forth a higher down payment from your side, it goes a long way in showing that you are a genuine borrower, interested in fulfilling your obligations with the bank. Paying at least 20% of the margin will be enough to make you more bankable. 

Now that we know the factors apart from credit score that affect a person’s chances of getting a loan or credit card, we can do a better analysis 

How To Improve Your Credit Score 

In the case of no credit score or low credit score, the person is not eligible for most loans or credit cards. Even if they do get a loan or credit card it will be at unfavorable terms as the risk involved for the bank is high.  

To help individuals build their credit, CreditMantri understand the customer’s situation and through their tie-up with over 50 lender, have come up with score building credit cards or loans using which they can build their credit score 

One can also opt for secured credit cards where the credit card applicant needs to provide collateral usually a Fixed Deposit. 75% to 80% of the deposit amount will be used as the credit limit for the card. The rate of interest will be lower on the credit card as the risk for the bank is less. 

Additional Reading: Check for various options for credit that people with bad credit have 

The last option for people with no credit score or low credit score could also be to consider borrowing from fintech lenders who base their lending decisions on various different data points and algorithms rather than just the credit score.  The interest rate will be higher but if the borrower pays their dues on time, their credit score will grow.  

The only way one can improve your credit score is being responsible with credit each time and every time, especially after being with a bad credit score.