Ask an Expert: Bad Credit vs. No Credit

Credit & Debt, Expert Q&A
on January 30, 2014

Dear Kirk: I recently graduated college—completely debt free! But now that I’m completely on my own financially, I’m realizing that I have absolutely no credit. Is having no credit really the same as having bad credit? What are some easy ways to start building credit?

Kirk Says: As always, let’s celebrate the good news—the fact that you are debt free, and you are starting with a clean canvas! Next, to answer your first question: The answer is no, having no credit is not the same as having bad credit. However, the ability to hinder you from obtaining credit and to build a good credit score makes the two very similar.

The difference lies in the fact that if you have bad credit, then a lender knows that you are a risky borrower and is unwilling to take the risk to lend you money. If you have no credit, the lender is simply left guessing about your riskiness—and is still unwilling to lend you money. Creditors want to lend money to people who are risk-worthy. Those individuals pay their bills on time and know how to properly manage their debt to credit ratio.

Building a good credit history from either starting position is very similar. Either securing a credit card or becoming an authorized user on a friend or family member’s credit card are the quickest ways to establish or improve your FICO score. Many banks offer starter credit cards with credit limits between $500 and $1000.  If you find yourself in a position that you don’t qualify for the starter card, then ask about a secured credit card. These cards will typically require a deposit between $300 and $500 and may be tied to a savings account.

Having a friend or family member add you as an authorized user on their credit card can also assist in building your credit history. A word of caution here is to check your credit report and make sure that you are actually receiving credit as an authorized user. If you have been an authorized user for 3 months with no change to your credit report, then it means the bank is not reporting anything under your name.

With any of the methods described above, it is important that you not spend all the way up to the limit, and make sure to pay the account in full every month. For example, if you buy gas once per week and it takes you $40 to fill up, then pay for each tank on your credit card—and then pay off the entire $160 balance at the end of the month. Do this for three to six months and you will be well on your way to getting that good credit score. Your next step may be to add a car loan or ask the bank to bump up your credit limit by $500 – $1000.

Please keep me posted on your credit building success story!

Kirk Gwaltney is a Chartered Financial Consultant and a Chartered Life Underwriter in Brentwood, Tenn. Learn more about him at

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