What Is Creditworthiness?

Tier 1 credit is generally defined as a credit score of 750 or higher. The term is most commonly used among auto lenders, but other lenders use it as well. People with tier 1 credit have the highest level of creditworthiness and will usually receive the most favorable terms on loans and lines of credit. They are considered low-risk based on their credit history, income and debt, and they are the most likely people to repay debts when compared to the general population.

Different lenders calculate credit tiers differently. That means you could apply for a credit card, have your score pulled and determined to be tier 1, and receive the best terms possible, but on the same day apply for an auto loan and receive less favorable terms because your score ranked as tier 2. That doesn't necessarily mean your score changed that day, the auto lender could just have stricter requirements.

Without knowing exactly how a lender determines tier 1 credit, if it even uses that terminology, it's a good idea to look at the generally accepted credit score ranges. Credit scores range from 300 to 850 overall, with scores of 750 and up considered “excellent” – the highest tier. More lenient lenders might consider tier 1 any score of at least 640 – the start of “fair” credit. It just depends on the lender.

Checking your credit report and score regularly is an important step in understanding your creditworthiness and what you can do to maximize your chances of having tier 1 credit. For personalized credit improvement advice and free daily credit score updates, sign up for a free WalletHub account.

A credit report is a summary of your recent credit history plus additional personal facts, including your age, address, marital status, employment history and other details that will help potential creditors or employers gauge your creditworthiness.

A credit report includes a record of all credit cards you currently hold, have held, or applied for. It also includes the credit limit and your payment history.

The fastest ways to improve your credit score are to pay down your balances, dispute incorrect information on your credit report, make more frequent payments, and reduce credit utilization. Credit utilization (how much of your credit limits you use each month) contributes to a portion of your credit score that accounts for 20% - 30% of your overall score. So, an adjustment there can result in a big credit boost pretty quickly. Similarly, you can dispute incorrect information with a quick online request or phone call. You won't always get an immediate credit score increase, but correcting errors on your credit report is a great place to start.

There are a few other ways to increase your credit score quickly, from becoming an authorized user to increasing your credit limit. They may not all be equally effective for everyone, as it can take years to build a consistently good or excellent credit score. In fact, some strategies could send your credit score in the wrong direction before leading to an increase. For example, requesting a credit limit increase can result in a hard inquiry that damages your credit a bit in the short-term, but having more credit available could produce long-term gains if used responsibly.

Here's how to improve your credit score fast:

1. Pay down your balances. If you aren't eligible for a credit limit increase, focus on paying down existing debt. Paying down a large chunk of debt at once will help your credit utilization ratio and bump up your score. If you can't make a large payment all at once, try to pay more than just the minimum monthly amount. If you have multiple debts, start by making payments on the debt that has the highest interest rate so you can limit interest charges.
2. Dispute incorrect information on your credit report. You should file a dispute for any incorrect negative info on your report. Once the dispute goes through, incorrect items will drop off your file, and your score should improve. You may have to wait 30 days for the credit bureau to review your dispute before you see any changes.
3. Make more frequent payments. Credit utilization is calculated based on the statement balance on each of your credit cards. You can reduce these balances, thus decreasing your credit utilization and increasing your credit score, by making payments before the end of each billing period. Then, pay off the remaining balance by the due date to avoid interest charges and credit-score damage.
4. Become an authorized user. If you're just starting out, or your credit report has a string of negative marks, a good move would be to become an authorized user on someone else's credit card and build your credit over time. Just make sure the primary holder is responsible and pays their bills on time.
5. Add new payments to your credit file. There are new services that can add positive information, like on-time utility payments, rent payments, and positive bank balances to your credit report. Not all of these programs apply to all credit bureaus, and some cost money to utilize, but they could boost your credit score over a few months.
6. Increase your credit limit. A higher credit limit can reduce your credit utilization ratio, assuming your spending does not increase. The only potential problem is that asking for a credit limit increase usually results in a hard credit inquiry, which would temporarily hurt your credit score a bit. But if you get a credit limit increase without asking, or you have a few months before you need the highest credit score possible, a higher limit could definitely help.

Everyone's credit situation is different, so not every option will be relevant or available to you. The best way to find out exactly what you can do to quickly improve your score is to check out the personalized advice in the Credit Analysis section of your WalletHub dashboard.

Yes, no credit does mean no credit score. That means you have no credit report, which in turn means that you have no recent experience with loans or lines of credit. You may never have borrowed money from a lender that reports to the credit bureaus, which store information about your credit history. Or, you have not done so in the past 7-10 years.

Having no credit score also means that you don't have any financial red flags, such as collections accounts, that would appear on a credit report and count against you. That's what separates people with no credit from having bad credit. On that note, “no credit score” isn't the same thing as having the lowest possible credit score (300). You simply don't have a score yet. And when you start building credit, your first credit score will depend on your initial performance, particularly your ability to pay the bills by the due date.  

Here's what it means to have no credit score:

• You have never borrowed money from a lender who reports information to the credit bureaus, or have not done so in the past 7-10 years.
• You have not recently applied for a credit card or other type of loan. Doing so puts a “hard inquiry” on your credit report and will lead to you having a credit score.
• There aren't any negatives in your financial life that might appear on a credit report. For example, you don't have any accounts in collections.
• You don't have the lowest possible credit score (300). You have no score at all.
• It's possible to go from no credit score to having a credit score in as little as one month.
• Your first credit score could be 300 to 700+, depending on how you manage bill payments early on.

Having no credit score can make it more difficult to get a loan, an apartment or even a job in the future. That's why it's good to begin building your credit as soon as possible. Start with a secured credit card if you have to, and make sure you pay on time every month. You'll be on your way to a good credit score in no time.

No credit means that you have no borrowing or payment history on your credit report. People with no credit don't have a track record of managing credit cards and other accounts. If you're a student, you may have no credit, unless you're paying off a credit card or a student loan. Anyone who doesn't borrow money, or hasn't borrowed anything in the last seven years, will have no credit.

With no credit, it is difficult, but not impossible, to establish credit. Lenders may be hesitant to extend credit to someone with no record of managing credit. Simply put, it takes credit to get credit.

To start out building credit, take advantage of other forms of credit. If you don't have a credit card,  consider taking out a student loan or personal loan. Make sure you borrow an amount that you can realistically pay back. Making consistent, timely payments, preferably above the minimum amount due, will quickly help build your credit score.

If you're not getting approved for other forms of credit, a secured credit card may be an option. You put down a security deposit to open the account, and the amount of your deposit determines your credit limit. With responsible use, you may qualify for a refund on your deposit, an increase in your credit limit, or be eligible to transition to an unsecured credit card with no deposit.

Good secured credit cards to consider are the Discover it Secured Card and the Capital One Platinum card.

You can also sign on as an authorized user on someone else's credit card. When you're an authorized user, activity on that card typically appears on your report as if it's your own card. The drawback is, if there's any negative activity on the card, that will also appear on your credit report.

Having no credit should not be confused with having bad credit. When you have bad credit, you've already established a history of mishandling credit accounts. With no credit, you're starting out with a clean slate. A lender may be more willing to work with you than someone with bad credit. When you have bad credit, you'll have to convince lenders you won't the same mistakes that led to your poor credit history in the first place.

Yes. No credit is better than bad credit because it is easier to turn no credit into good credit. With no credit, you will also have better credit card options, and it won't cost you as much overall. Bad credit will make it much harder and more expensive to get a mortgage, auto loan, personal loan or credit card. It could also complicate finding a job or place to live.

You can see where, exactly, your credit score falls on the 300-850 scale by checking it for free on WalletHub – if you have a score, that is. If you have absolutely no credit history, you won't have a credit score because there's nothing to base one on. But you can get your first credit score within a month of opening your first credit card.

Below, you can learn more about what no credit and bad credit mean, how they compare, and what you can do to improve on either rating.

What "No Credit" Means:

No credit means you have no credit history, or experience as a borrower – not that you have no shot at getting credit. Lenders must be somewhat cautious with unproven applicants, but people starting with a clean slate are at least as likely to manage credit responsibly as they are to abuse the privilege. So, when you have no credit, lenders are more likely to consider your potential than someone with bad credit.

For example, college students are able to get very attractive credit cards despite not having much, if any, credit history because they have high earning potential and lots of financial needs ahead of them, which could make the banks and credit unions offering the cards a lot of money in the long run. And other people with no credit can get a credit card to begin building credit without placing a security deposit.

What "Bad Credit" Means:

Bad credit means you've made mistakes as a borrower or otherwise failed to satisfy certain payment obligations. For example, bad credit could be the result of bankruptcy, foreclosure, repossession, defaulting on a loan or line of credit, collections accounts and more.

There's less guesswork for creditors when it comes to people with a track record of misusing credit because past performance is the best indicator of future results, and they already have some evidence of what kind of borrower you'll be. You just need to prove them wrong.

Next Steps for People With Bad Credit & No Credit:

Whether you have bad credit or no credit, the solution is pretty much the same. You must add positive information to your major credit reports on a regular basis, to either cover up past mistakes or build out a thin credit file. And that means you need to get a credit card and use it responsibly. All major credit cards report account information to the credit bureaus monthly, and that information will help your score if it shows you've paid your bill on time. You don't even need to make purchases with your card to benefit.

Of course, the credit card options are a bit different for people with bad credit and no credit, respectively. A secured credit card is your best option if you have bad credit, while you should be able to get a decent unsecured starter card if you have no credit.

You learn more from WalletHub's new to credit and bad credit score guides, but we'll summarize the biggest differences between these credit categories below.

Compare Bad Credit vs. No Credit:

Whether you have bad credit or no credit, you need a credit card to begin (re)building your standing. And you can't go wrong with one of WalletHub's editors' picks for the best starter credit cards or the best credit cards for bad credit.

Insufficient credit history means that you don't have enough experience as a borrower for a lender to approve you for a credit card or loan. Without a sufficient amount of information in your credit report, a financial institution cannot predict how you will handle borrowed money as accurately. So, it's common to see the term “insufficient credit history” on a letter of denial from a lender. But it may come up other times, too, like when you're apartment hunting. Renters with insufficient credit history are more likely to be asked for money upfront.

Having insufficient credit history doesn't mean you've done anything bad. It just means you're inexperienced. And that won't keep you from borrowing, building credit, finding an apartment, etc. You just have to choose wisely. For example, there's an entire class of credit cards for people with limited or no credit. And using such a card responsibly will help you build a strong track record as a borrower, making insufficient credit concerns a thing of the past.

What Insufficient Credit History Means & How to Fix It

• Insufficient credit history is a term that lenders use to tell you that there is not enough information in your credit report to approve you for a loan or credit card.
• If you have insufficient credit history, it might mean that you have less than 3 years of recent credit experience, a track record of credit mistakes, or just not enough experience with different types of borrowing.
• Insufficient credit history is something you can start to change in as little as a month. One way to start is to become an authorized user on someone else's credit card. Or, you can apply for one of the many credit cards for people with limited or bad credit.
• There are plenty of credit cards for people with insufficient credit history, including secured cards (easiest to get, thanks to a required security deposit) and unsecured credit cards designed for applicants with limited or no credit history. As long as you have some form of income, you should be able to get a card.
• You can ask your local bank or credit union if they offer credit-builder loans. This involves the financial institution depositing a small sum of money in your savings account, which you then repay over an agreed-upon number of months. The lender reports your payment history to the credit bureaus each month. And you get access to the savings account afterward.

You don't need to feel too stressed about having an insufficient credit history. But you should also strive to start building credit as soon as possible. Getting a credit card, making small purchases each month, and always paying your bill (in full) by the due date will set you firmly on the credit-building path.

You can check your latest credit score for free, and track its progress over time, on WalletHub.

You can have a credit score without a credit card if you've taken out a loan, had rent payments reported to the major credit bureaus, or fallen behind on other bills. A credit score is just a way of summarizing the contents of your credit reports. And in addition to information about any credit card accounts you've had in the past 7 years, credit reports contain info about other loans and lines of credit you've used as well whether you've been sent to collections or sued for amounts owed. Unpaid alimony and child support also are noted on credit reports, as are tax liens. So even without ever using a credit card, you still could have a credit score if you've otherwise borrowed money or failed to pay some key bills. 

You can see if you have a credit score for free on WalletHub, the only site with free daily updates. The fact that it's possible to have a credit score without a credit card might mean you already have a rating. But if you don't have a score, or just want yours to be higher, you really should get a credit card. Having an open credit card account is the most efficient, inexpensive credit-building option available. Just consider the alternatives.

Here are the best ways to get a credit score without a credit card:

• Make rent payments: Ask if your landlord reports your monthly rent payments to the credit bureaus. If they don't, you can sign up for a service like PayYourRent.com that will ensure you get credit for paying on time. 

• Pay your student loans: If you took out loans to pay for college or vocational training, consistently paying them on time will build up your credit.

• Get an auto loan: You can get an auto loan with limited or bad credit history, but your interest rate and car insurance premiums will be fairly high.

• Get a credit-builder loan: Some banks and credit unions offer small loans specifically designed to help people with no credit build their history. You may have to offer collateral in order to get one.

You can have a credit score without a credit card if you've otherwise borrowed money, had a landlord report your payments to the credit bureaus, or failed to pay bills. But applying for the right credit card, like an easy-to-get secured card, is one of the cheapest ways to start building your credit history. And if you're not able to get a credit card in your own name, you may be able to find someone who will add you as an authorized user. This will also help you build credit.

No, everyone does not have a credit score. More than 50 million people in the U.S. do not have a credit score right now due to a lack of credit history. Around 25 million American adults have no credit history at all, according to industry research, and roughly 28 million have unscored records because they have too few credit accounts or their accounts are too new to be included in a credit report.

Credit history is a significant factor when determining a credit score, and is one of the main reasons why so-called “credit invisibles” do not have a score. More than 80% of 18-19 year olds don't have a credit score because they haven't had the time to build any credit history. Credit invisibles are also most likely to be found in low-income neighborhoods or be recent immigrants to the United States.

These credit invisibles are still able to make payments and function in an increasingly credit-driven world, even if they lack credit history and a credit score. They may live a cash-focused lifestyle or borrow from lenders that don't report to the credit bureaus. But not having any credit can also make life a lot more difficult by preventing people from borrowing at attractive rates as well as limiting housing and employment options.

If you aren't sure whether you have a credit score or not, it's easy to find out. WalletHub offers free credit reports and free credit scores updated daily, letting you see what exactly is going on with your credit. You'll also get personalized tips for improving your credit standing and an estimate of how long that might take.

Your credit score is important because it helps determine whether you're approved for credit cards and loans (plus what interest rate you will pay), and it can affect the cost of other services like insurance and utilities. Your credit score is an indicator of your creditworthiness and overall trustworthiness.

Reasons Why Your Credit Score Is Important

• Determines access to credit cards and loan dollars
• Affects interest rates and borrowing terms
• Influences eligibility for rewards and benefits from financial institutions
• Can impact the cost of insurance, utilities, cell service, internet and renting an apartment
• Influences marriage prospects

Maintaining a good credit score can save you thousands of dollars in fees and interest over time. With a good score, lenders will extend credit to you at a lower rate, reducing your costs for a number of items such as mortgages and auto loans. You'll also be in a position to qualify for the best credit cards.

Bad credit, on the other hand, will make borrowing money from any lender more expensive and may hinder your ability to borrow from a financial institution at all. Also, potential employers can review your credit history in some cases, though they do not have access to your credit score. Poor credit history can potentially prevent an employer from moving forward with a new hire.

Fortunately, you can check your latest credit score for free and find out how to improve your credit right here on WalletHub.