Do You Know: What Is a Bad Credit Score?

Jan 22, 2024 By Triston Martin

Introduction

A person's credit score reflects their past payment history and propensity to make future payments late. A bad credit score is a common consequence of this. Companies can have a low credit score if they have a history of late payments or unstable finances. Borrowing money will be difficult for a person (or business) with poor credit, especially if they want to do so at a reasonable interest rate. This is true for both secured and unsecured loan types. The second group, however, has choices. This guide will help you understand what is considered a bad credit score.

Understanding Bad Credit

What is a bad credit score? In the United States, most people who have applied for credit or taken out loans will have a file at one of the three major credit bureaus: Equifax, Experian, and TransUnion. A person's credit score is a numeric representation of their creditworthiness based on information in their credit files, such as their debt levels and payment history. Amongst Americans, the FICO score—named for the company that created it, Fair Isaac Corporation—holds supreme popularity.

Examples of Bad Credit

Borrowers with FICO credit scores of 579 or lower have historically been stigmatized as having poor credit. Experian estimates that 62 percent of customers with scores of 579 or lower will become substantially late on their debts. Good grades are considered to be between 580 and 669 points. Compared to borrowers with poor credit, these individuals provide far less dangerous when it comes to loan repayment. However, even borrowers with scores in this range may need help acquiring loans at competitive rates or all if their scores are below 760.

Techniques Used To Raise Low Credit Scores

What is a bad credit score number? There are things you can do if your credit score is below 669 to raise it and maintain it there. FICO has provided some advice on how to achieve this goal. Responsible use of credit and sound money management can benefit you immensely. If you're looking for solutions, perhaps these will work:

Examine Your Credit Report

Data in credit reports are used to determine credit ratings. If you want to know where you stand financially, you can acquire a free copy of your credit report every year from AnnualCreditReport.com. Capital One's CreditWise is another helpful resource. Keeping an eye on your credit won't affect it in any way. And not just Capital One users, either; everyone may use it for free. You must maintain a positive credit score by making timely payments and settling past-due accounts.

In calculating your credit score, your payment history is given the most weight by various scoring models, such as FICO and VantageScore. The Consumer Financial Protection Bureau recommends becoming current on payments and making on-time payments in the future to boost your credit score. Talk to your lender about your repayment choices if you have financial difficulty.

Become an Authorized User

Since the primary cardholder is always liable for payments, trust is crucial when someone adds you as an authorized user. According to the CFPB, authorized user status might benefit your credit score so long as your account activity is monitored and reported. However, late payments may have repercussions for both you and the cardholder.

Consider a Secured Credit Card

When you apply for a secured credit card, you must make an initial deposit equal to a percentage of your total credit limit. Some issuers may report secured credit card transactions to credit reporting agencies. If you are eligible for a secured credit card, utilizing it wisely will enhance your credit score. This entails being current on all payments and staying within the required minimum each month. The Consumer Financial Protection Bureau recommends trying to pay off your monthly account balance in whole before the due date each month.

Keep Some of Your Credit Available

The amount of available credit you utilize is known as your credit usage ratio, which might affect your credit score. The Consumer Financial Protection Bureau suggests staying within 30% of your total available credit across all your accounts.

Conclusion

It is considered poor credit when the FICO and VantageScore numbers are lower than 670. A low credit score doesn't have to hold you back just because it's not where it needs to be. There are easy things you can do to raise your credit score, and you may even see an improvement soon. Working on your credit is essential because doing so can open doors and provide financial benefits.

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