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Most Canadians have applied for a credit card, car loan or a mortgage. However, there are some Canadians who are more risk-averse and haven’t used any credit. Depending on what your credit is like, your ability to access affordable credit will vary. However, have you ever wondered if having no credit is better than having bad credit? 

What Does It Mean To Have Bad Credit? 

In Canada, credit scores range from 300 to 900. In general, a good credit score is considered to be anywhere from 660 to 724. With a score in this range — and anything above it — securing a loan or credit product is more feasible and affordable. 

Unfortunately, scores that fall below this range make it more difficult for Canadians to get approved for loans, and may even make it tough to secure a lease, a cell phone contract, and even a job. 

More specifically, a bad credit score usually falls under 559. Lenders, banks, landlords, and even employers may consider you financially unstable if your score is at this level or lower. 

If you have bad credit, you’ll either need to work with an alternative lender to get approved for a loan or take some time to improve your credit to make borrowing more accessible. 

Causes Of Bad Credit

There are numerous factors that can negatively affect your credit scores in Canada. Here are a few reasons you may have a bad credit score. 

Late Bill Payments

One of the most important factors used in calculating your credit scores is your payment history. In fact, this component accounts for around 35% depending on the credit scoring model used. As such, if you have a history of late or missed payments, it could be negatively impacting your credit scores. Understandably, lenders won’t want to deal with anyone who is known for missing bill payments. 

High Debt-To-Credit Ratio

The amount of credit you use relative to your credit limit, known as your ‘debt-to-credit ratio‘, is another important factor that often makes up your credit scores. If you spend high amounts compared to the credit you have available, it could negatively impact your credit. 

The higher the ratio, the worse it usually is for your credit scores. Ideally, your credit utilization ratio should be no more than 30%. 

Applying For Too Much Credit

Filling out too many loan or credit account applications within a short period of time can be bad for your credit scores. While a couple of hard inquiries may not cause much damage, multiple hard inquiries might. Moreover, too many credit inquiries suggest you may be financially struggling. Lenders want to be secure knowing that you have enough income to cover your bill payments, but having too many credit inquiries means you may be taking on more loans which may stretch your income too thin. 

Defaulting On Loans 

If you’ve already defaulted on a loan, your credit may suffer. Even if you’ve missed a payment here and there, you can still make good on your loan obligations by making up for these payments shortly after. 

But if you fail to make your payments after 90 days, your account will be moved to default status. This can severely negatively affect your credit scores. Moreover, you’ll also likely have a collection agency after you to collect the funds you still owe. 

What Does it Mean To Have No Credit? 

If you have ‘bad credit’, that means you already had established some credit. But ‘no credit’ means you have no credit history at all. You’ve never applied for a loan, credit card, or any other financing product before. In this case, the major credit bureaus have nothing to go on to assign a credit score to you.

Like bad credit, no credit makes you somewhat risky in the eyes of lenders. With no credit score to assess your financial health, lenders have nothing to base their decision on whether to extend you credit or not. No credit history means your creditworthiness is unknown, which can make lenders uneasy when it comes to approving you for a loan. As such, until you establish some credit, you may have difficulty securing a loan and other credit products. 

Causes Of No Credit

There are a few reasons why you may have no credit, including the following: 

Thin Credit Profile

The most obvious reason for having no credit is your lack of credit usage. A zero credit score can be a result of no or very little credit history. In order for the credit bureaus to generate a credit score, they require enough information in your credit report to do so. This is common for young adults and students who are just starting out in their financial life.


No credit history is also a common trait for newcomers to Canada. While a newcomer may have had some sort of financial profile back home, they may not have had the chance to build it once again when they initially relocate to Canada. 

Credit Not Being Used

If you have access to a credit product, like a credit card, but have not used it in a while, it may appear to lenders that you have no credit. Credit card issuers and lenders report payment history to credit bureaus, which is how your credit history is established. Generally, credit information lasts for 2 to 6 years depending on the credit activity, after that it disappears from your report. So if you are not using your available credit, that too can cause you to have no credit history. 

Is It Worse To Have Bad Credit Or No Credit? 

Whether you have bad credit or no credit, you’ll have difficulty securing different credit products in the future. That said, having bad credit is generally considered worse than having no credit at all as far as lenders are concerned.  

Lenders may be more willing to give borrowers with no credit a chance over those with bad credit because they haven’t been irresponsible with credit. A person with bad credit suggests they’ve mishandled their debt which may include late payments, loan defaults, high credit utilization and other poor credit actions. 

How To Build Your Credit If You Have No Credit? 

Building a positive credit history is imperative in order to qualify for a loan or mortgage in the future, especially if you want a favourable interest rate. If you have zero credit history or very short credit history. Here are a few simple steps to help you improve your credit:

  1. Get A Credit Card – As mentioned, one of the reasons for no credit is a lack of credit history. So, taking out a credit card at your bank and using it consistently can help build your credit. Just be sure to make all payments on time and in full and be sure not to keep your debt-to-credit ratio low (most lenders like to see a ratio of 30% or below).   
  2. Opening And Closing Accounts – Don’t apply for too many new credit accounts at once as this will result in multiple credit inquiries which can negatively impact your credit. Similarly, it’s important not to close any credit cards, unless necessary. Closing accounts will lower the average age of your credit history (the longer you have credit accounts open, the better for your overall score).  
  3. Increase Credit Limit – If you feel your current credit products, consider increasing your credit limits. This will make your debt-to-credit ratio lower which may have a positive impact on your credit.
  4. Keep Tabs On Your Credit – Check your credit by requesting a copy of your credit report and your credit scores through one of the two Canadian credit reporting agencies, TransUnion or Equifax. Keeping track of your credit will help you monitor your progress. 

How To Build Your Credit If You Have Bad Credit?

If you currently have bad credit, here are 5 steps to improve it:

  1. Pay Down Your Debts – If you’re falling behind on payments, try to pay off the debt with the highest interest rate first, while making the minimum payment on the rest. Once paid off, you can use the money from there to pay off the next debt and the next. As you pay down your debts, you’ll be building a more positive payment history. 
  2. Use A Secured Credit Card – If you can’t get approved for a “regular” credit card consider applying for a secured credit card. They’re easy to qualify for and it can help you build credit.
  3. Reduce Your Debt-To-Credit Ratio – Work to reduce the amount owed on your credit cards and lines of credit so your debt-to-credit ratio is lower. 
  4. Pay Off Any Debts In Collections – Any accounts in collections can have a severe negative impact on your credit. So handling any accounts that might be in collections could help your credit.

Frequently Asked Questions

Will I get approved if I have no credit history?

You should still be able to secure basic credit and loan products even if you have no credit. There are products specifically designed for borrowers in this situation — like secured credit cards — that can help people like students and newcomers to Canada establish credit.

What is your credit score if you have no credit history?

If you have no credit history, you won’t have a credit score, or it’ll appear as zero to the credit bureaus.

How do you calculate your debt-to-credit ratio?

Your credit availability divided by the amount of credit you are currently using makes up your debt-to-credit ratio.

Bottom Line

The longer you’ve established a credit history, the better your overall credit score. Thus, starting early and working your way up slowly can help you build your credit. While it may take considerable time and effort to recover your bad credit, consistent responsible credit usage can help your credit. Once you’ve established good credit, any future loans you may will be easier to access, that too with affordable rates.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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