What Is Considered a Bad Credit Score? - Find Out The Best Ways to Improve Your Score
Updated: Jan 4
Everyone wants to know what a bad credit score means, and it can be hard to define. Depending on who you ask, the answer ranges from a few hundred dollars of loan interest per month to being unable to buy a house. But how does one know if their credit score is in the healthy range or not? For those who want an overall idea of what the safe credit scores are, here's some insight.
How do I find out my score?
-Credit review websites are a great place to start looking for your score. If you have no records of your credit history, there are also many sites that will allow you to pull up your account information without any personal information being required.
-The best way to find out your credit score is by getting a copy of your report from each of the three major agencies: Equifax, TransUnion and Experian. This should be done every 12 months regardless of whether you have any changes in your financial situation or not.
What is considered a bad credit score?
One of the first things that comes to mind when one considers a bad credit score is being unable to buy a house.
-Banks and lenders will not consider a credit score below 650 as good, but there are many variables in this equation. It's important to note that the lower your credit score, the more likely you will be charged higher interest rates on loans, mortgages and other financial transactions.
-A low credit score can also mean an increase in the cost of insurance premiums, with some carriers requiring applicants with scores below 620 to pay more for their coverage if they cannot provide proof of a stable history.
-Some employers may also look at your credit history when considering whether or not to hire you. If you have a lower than stellar score for example, you may find yourself behind an experienced candidate who has been through job applications before.
What does a good credit score mean?
A good credit score is generally considered to be anything above 720. If you have a score that's too low, it can be problematic to get approved for loans or other types of credit. But if your score is too high, there might not be any value in having it since banks may not consider it a good risk.
In general, the best time to improve your credit score would be when you are first opening your accounts and getting started with building up your bankroll.
How to improve your credit score
-Build positive credit history.
-Pay your bills on time.
-Keep your balances low and avoid late fees.
-Only use the credit you actually need, and make sure to pay it off in full at the end of each month.
-Avoid borrowing too much money, which will significantly hurt your score.
What's more important, your payment history or your debt-to-income ratio?
A lot of people wonder whether it's better to focus on your payment history or your debt-to-income ratio. While both can give you a general idea of how healthy your finances are, they're not the same. A credit score will also factor in how much you owe to lenders and if you've made on-time payments throughout the year.
How do I know what my payment history looks like?
-Payment histories can be found in your credit report. Companies like TransUnion have websites that allow you to pull up this information as well, but depending on where you live, other places might also offer this service such as:
1) Your bank
2) Credit unions that have a branch near you
What are the different impact of having a bad credit score?
-If you have a bad credit score, you could be denied for loans or other services.
-You might be charged a higher interest rate on your loan.
-Your credit score can impact the type of insurance that you can buy, what house you can purchase, and even which school you can attend.
-If someone is looking to borrow money from you, they may decide not to do business with you due to your poor credit history.
-If someone is looking at your social media profiles, they may be able to determine that your financial situation is unstable because of the way in which you interact with others online.
Not being able to borrow money
A bad credit score can be due to a few things. It could mean that your credit limit is too low, or that you've missed a payment and it's gone onto your record as a late payment.
If your score falls below the range of fair and you have any of these issues, it will be hard for you to borrow money.
The best way to avoid having a bad credit score is to stay on top of your finances and make sure everything is in order before you need to borrow money. This will help ensure that you're not going into debt when you actually need the funds.
Not being able to buy a house
A score below 650 is considered to be bad credit. As of September 2016, that meant a person would have to pay about $1,500 in interest each year for loans because their score was too low. If your credit score is lower than 650, you can expect to pay higher interest rates and fees from lenders.
If you're trying to buy a house, but you have poor credit, it may be harder than usual. Lenders will want to verify your identity before they'll consider offering you a loan. They'll also take into account whether or not you've been delinquent on any other debts in the past.
If you want to purchase a home with bad credit, there are options available for people who may not qualify otherwise. For example, if your income is under certain limits and your debt-to-income ratio is low enough, they may still give you a loan regardless of your credit history.
The difference between bad and great credit scores.
So, what is a good credit score?
-A good credit score is between 700 and 850.
-There are some exceptions to this range, which are:
-If you have a large number of collections, then your score may be lower than 700.
-If you have a lot of revolving balances on your card, then your score will most likely be lower than 800.
-If you have unpaid medical bills or judgments from the past, these can also cause your score to be lower than 800.