What Is a Bad Credit Score? This Is What You Need to Know

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(Newswire.net — September 16, 2020) — About 53% of Americans, which account for more than half the population have been denied loans and rejected for credit cards due to a bad credit score. Even more surprising is the fact that only 1% of Americans can boast of a perfect credit score. Question is, what is a bad credit score and why does it matter?

In many ways, your credit score is the gateway to financial security. It opens up opportunities for getting loans with low-interest rates, housing, and in some cases, employment. Your credit score could be the barrier between you, and the lifestyle you desire.

In this post, we’ll guide you through everything you need to know about bad credit scores, and what you can do to improve yours.

What Is a Bad Credit Score?

Bad credit refers to your history of failing to pay bills and the likelihood that you will not make timely payments in the future. Credit score ranges usually vary based on the scoring model used, like FICO and VantageScore or credit bureaus like Experian, and TransUnion.  Most lenders consider the FICO score, though.

Additionally, different card issuers and lenders have their own set guidelines that determine what constitutes a bad credit score. They base their decisions on the amount of risk they are willing to take. Some lenders cater to borrowers with a perfect score, while others specialize in lending to those with bad credit scores.

What Is a Bad Credit Score Number?

What is considered a bad credit score? The FICO credit score is any number between 300 and 850. It’s designed to indicate the level of consumer creditworthiness and their likelihood to pay debt on time. The higher your number is, the higher your creditworthiness is.

Scores from 300 to 579 are poor, and credit applicants may not get approved for loans easily. Scores from 580 to 669 are considered fair, and applicants are considered to be subprime borrowers.

Scores ranging from 670 to 739 are considered good and can easily get approved for most types of loans. Scores from 740 to 299 are very good, and loan applicants are likely to get better than average offers, and can easily qualify for most loans as well.

The exceptional credit scores run from 800 to 850, and these are the most creditworthy of the lot. Anyone in this category is going to get the best rates in the market, with no possible denial.

Vantage Scores are almost similar because they also range from 300 to 840. Anything from 300 to 499 is considered very poor, from 500 to 600 is poor, 601 to 660 is considered a fail, 661 to 780 is considered good, and 781 to 850 is considered excellent. About 61% of Americans have a fair VantageScore.

What Affects a Credit Score?

There are two major factors that affect a credit score, which are payment history and the credit utilization rate. The payment history accounts for 35% of the score and you need to make payments consistently to keep the score up. If you fail to pay on time and take too long to make the payment, your credit score suffers.

FICO also considers the amount of revolving credit you have. This is your credit utilization rate, and it accounts for 30% of your credit score. Beyond these two, the length of your credit history also affects your score, and so does your new credit, and credit mix. 

The length of your credit history accounts for 15% of your score, your new credit accounts for 10%, and your credit mix accounts for 10%.

How Does a Bad Credit Score Affect You?

A low credit score can affect your life in several ways. For starters, with a bad credit score, lenders will view you as a high-risk borrower and will charge you high-interest rates. If you need a mortgage, for instance, with a low credit score, you could end up paying thousands of dollars because of the high-interest rates.

It’s actually not easy to qualify for most loans, especially mortgages since it’s a substantial amount, and a great risk for the lender. Don’t be surprised if most lenders reject your mortgage application if you have bad credit. Beyond this, it may be difficult to get an approval for a cellphone contract or an apartment.

Some employers could also deny you employment, especially in jobs that require financial responsibility, and if you need to put up a business, qualifying for a small business loan won’t be easy either. Obtaining a conventions car loan may not be easy or impossible as well, and you might have to go for other expensive alternatives.

How Can You Improve Your Bad Credit?

Everyone’s situation is different, so you will have to do what will work for your situation. The best part is, even with a low credit score, once you start to make improvements, you can see results in as little as three months. Improving your credit score is relatively easy and you can start by checking your credit score online.

Once you know what your score is, start by paying all your bills on time. Set automatic payments or payment reminders so you can avoid late payments. Pay down all the revolving debts you have, like credit cards, which will decrease your credit utilization rate. If you can, get a secured credit card, get a short-term loan that you can pay back in a short time, or get a credit-builder loan.

What Is a Bad Credit Score? Everything You Need to Know

So, what is a bad credit score? It’s something you need to work on so you can have better financial opportunities. Having a bad credit score can pose certain problems with your personal finances, so it’s important for you to improve it as soon as you can. 

Now that you know everything you need to know about your bad credit score, you have to take the initiative to change it by taking the right steps.

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