Is No Credit Worse Than Bad Credit?


  • Who has a better chance of accessing loans or credit cards - Someone with no Credit History vs Someone with a Bad Credit Score?
  • Read this post to know the answer to this question as well as several other details

It’s actually the other way around! People with no credit history can still be preferred over the ones having a bad credit score. Lenders want to disburse loans to individuals having a strong credit history, particularly when it’s about unsecured loans such as personal loans. They seek a credit score of 700 and above before approving personal loans. In case you have a score of less than 650, you will most likely face rejection. Given that lenders like to trust someone having a credit experience, you may ask why someone with no credit history can be given the preference over someone with a bad one. There are reasons for the same. In this post, we will tell you that, so keep reading!

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Why Do Lenders Prefer Individuals with No Credit History Over Someone with a Bad Credit Score?

Individuals with a bad credit record must have defaulted on loans or credit card payments in the past. As a result, their credit account must have got written off by the lender, which would have reported the same thing i.e. Written-off to the credit bureau. This not only brings down the credit score of such individuals but also gives them the tag of a defaulter. In some cases, a wilful defaulter tag can also be given. Even when someone opts for debt settlement in agreement with the lender, the credit record worsens. The credit score may not reduce given that it is an agreement made between the borrower and lender where the former can pay a reduced amount to the later and get free of debt obligations. But while sanctioning a loan, the lender not only checks the credit score but even the credit record of individuals. In case the debt settlement is found in the credit record, the lender can reject the new loan application.

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Someone not having a credit record could turn out to be either a responsible or irresponsible borrower if given a credit. Although lenders want to lend someone who has had an experience of handling debts, they won’t mind giving loans to people new to credit if they find the concerned individual worthy of it based on their income and other factors that we will tell you later.

How are People with No Credit History Better Placed Than Someone with a Bad One?

People with no credit history can score better than someone having a bad credit score. Individuals with no credit history can get the following benefits that individuals with a bad score may not.

Higher Loan Amounts – If you are earning high, you can be sanctioned a higher loan amount. The actual loan amount will depend on your earnings and repayment potential.

Better Interest Rates – Individuals new to credit can get better interest rates on the loan they apply for. However, the lender will also consider the overall income of such individuals before taking a call on the same. If you talk about home loans, lenders explicitly mention the interest rate based on the credit score and credit status of an individual. People with no credit history get better interest rates as opposed to someone with a bad one. However, some lenders could provide the same rate to these two sets of people. Let’s check out the table below to know the home loan interest rates for people with no credit history and those having a low credit score.

LendersInterest Rates for Individuals with No Credit History (In Per Annum)Interest Rates for Individuals with a Low Credit Score (In Per Annum)
Bank of Baroda (BoB)7.60%8.35%
LIC Housing FinanceSalaried - 7.40%
Non-salaried - 7.50%
Salaried - 7.50%-7.80%
Non-salaried - 7.60%-7.90%
PNB Housing FinanceSalaried - 9.25%
Self-employed - 9.45%
Salaried - 9.25%
Self-employed - 9.45%
Bank of India (BOI)Salaried - 7.00%-7.05%
Self-employed - 7.10%-7.15%
Salaried - 7.10%-7.15%
Self-employed - 7.70%-7.75%
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Note – The low credit score criteria can differ from one lender to another. While some consider a low score below 700 as low, others can consider a score of less than 600 and 650 as a low score.

Quicker Loan Approval – Someone new to credit can get the approval much quicker than someone having a poor score, especially in the case of unsecured loans.

How Can Individuals with No Credit History Get a Personal Loan?

Lenders offer personal loans to individuals without asking them to provide collateral in return. With that, the credit risk of lenders increases significantly. That’s why lenders want someone who has a credit score of 750 and above. Such a score means the individual has managed his/her loan or credit card payment efficiently. If someone has a bad score, his/her personal loan application will most likely be rejected. When someone is new to credit, he/she won’t have a credit score. But a personal loan can still be given to the particular individual based on meeting the following conditions.

Working in a Top Organization – Individuals working in top organizations can get a personal loan even if they don’t have a credit history. After all, the lender wants individuals to pay off the personal loan EMI on time. This can be greatly ensured by someone having a regular income, which is greatly the case with people working in top organizations.

Individuals Having Shown Job & Residence Stability – If you don’t have a credit history but have worked in an organization for a relatively long period, the lender can approve a personal loan application. The job stability gives lenders the impression that the individual has been doing well in his/her profession. Such an impression makes lenders feel confident in lending personal loans to a particular individual. If the job stability is complemented with residence stability, it will further boost your chances of getting a personal loan. The residence stability gives confidence to the lender that the concerned individual won’t change the residence much. In case any incident of loan payment delay happens, the officials of the bank or NBFC can come to meet the concerned person.

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Salary & Savings Account Holders – Individuals having salary and savings accounts with banks for long can get approval for a personal loan even if they don’t have a credit history. Salary accounts, in particular, lets banks know the salary of the particular individual and assess his/her repayment potential. Based on these, lenders can determine personal loan eligibility for the concerned person.

How Can One Get a Home Loan With No Credit History?

A home loan can be given to individuals without a credit history as well as those who have a low score. Since a home loan is a secured loan where the property is mortgaged, the credit score does not play much of a role when it comes to approval. But it does play a role in the setting of home loan interest rates, which you have seen above. The same thing happens in other secured loans such as loans against shares, mutual funds, fixed deposits, bonds, etc.

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Personal Loan Interest Rates October 2023
Fullerton India12.00% - 24.00%
HDFC Bank10.75% - 14.50%
ICICI Bank10.75% - 19.00%
IndusInd Bank10.25% - 26.00%
Kotak Bank10.99%
RBL14.00% - 23.00%
Standard Chartered Bank11.49%
Tata Capital10.50% - 24.00%
Home Loan Interest Rates October 2023
Axis Bank8.75% - 9.15%
Bank of Baroda8.50% - 10.60%
Citibank8.75% - 9.15%
HDFC8.50% - 9.40%
ICICI Bank9.00% - 9.85%
Indiabulls Housing Finance Limited8.65%
Kotak Bank8.85% - 9.40%
LIC Housing8.50% - 10.50%
Piramal Capital & Housing Finance10.50%
PNB Housing Finance8.50% - 10.95%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI9.10% - 9.65%
Tata Capital8.95% - 12.00%