When you have no credit, that means major credit reporting agencies don’t have a reliable means to predict how well you perform with paying bills or repaying loans, lines of credit or other forms of financing.
Bad credit does not amount to the same as no credit. Instead, bad credit means you have made some missteps or even significant mistakes.
Having bad credit is worse than no credit in most instances because you’ve shown you can’t handle credit responsibly, and you will need to work harder on improving your credit scores and credit history.
These loans function as a tool for people who have low or no credit history. They can use them to begin building up their credit scores by establishing a credit history.