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Having a bad credit score is not the end of the world, as long as you work to improve it.
While bad credit can make it more difficult to achieve financial milestones, such as being approved for a car loan or mortgage, there are steps you can take to fix your credit score.
Lenders look closely at your credit report when determining if you qualify for credit, such as credit cards or loans. One of the factors they consider is your credit score. This three-digit number is calculated by analyzing your financial actions, such as debt and payment history, to predict your ability to pay back the money I loaned you.
If you have a credit score of less than excellent, you should take action as soon as possible, so you can work towards getting good credit and increase your odds of being approved for financial products such as credit cards and loans.
Below, CNBC Select explains what range of credit score is considered bad, how to improve a bad credit score and how to get a free credit report.
Rundown: bad credit scores
- What is a bad credit score?
- How bad credit can hurt you
- How to improve a bad credit score
- How to check your credit score for free
What is a bad credit score?
Credit score ranges vary based on the credit scoring model used (FICO vs. VantageScore) and the credit bureau (Experian, Equifax, TransUnion) pulling the score. Below, you can check which credit score range you fall in, using estimates from Experian. Keep in mind that lenders use of the credit score varies, although 90% do withdraw your FICO score.
- Very poor: 300 to 579
- Fair: From 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Excellent: 800 to 850
- Very weak: 300 to 499
- Weak: 500 to 600
- Fair: 601 to 660
- Good: 661 to 780
- Excellent: 781 to 850
What are the factors that affect your credit score
Credit scores are calculated differently depending on the credit score model. Below are the main factors that FICO and VantageScore take into account.
- Payment history (35% of your score): Whether you have paid previous credit accounts on time
- Amounts due (30%): The total amount of credit and loans you use compared to your total credit limit, also known as your usage rate
- Credit history length (15%): The length of time you have earned credit
- New Credit (10%): How often do you apply and open new accounts
- Credit mix (10%): A variety of credit products you own, including credit cards, installment loans, finance company accounts, mortgage loans, etc.
- very impressive: Payment record
- very impressive: The type and duration of credit and the credit limit percentage used
- moderate influence: Total balances/debts
- less influential: Available credit, credit behavior and recent inquiries
How bad credit can hurt you
A bad credit score can reduce the chances of getting approved for credit cards and loans, making it difficult to achieve many goals. If you want to get out of debt with a balance transfer card, such as the Discover it® Balance Transfer, you will need good or excellent credit. And if you want to earn rewards or get the privileges of luxury travel, it will be nearly impossible to find a card that accepts bad credit.
Less favorable loan terms
If approved for credit, prospects will get less favorable terms, such as higher interest rates or annual fees, than applicants with good credit. For example, one of the best credit cards from CNBC Select for bad credit, the OpenSky® Secured Visa® credit card, has an annual fee of $35; Although there are no annual fee options.
Credit card options are limited
bad credit limits for credit cards that you can qualify for; The options you have will be basically secured cards. While a secured card, such as a Discover it® Secured Credit Card or Capital One® Secured Mastercard®, can help you rebuild credit, you are required to make a security deposit — usually $200 — in order to receive an equivalent line of credit.
Keep in mind that even if your credit score falls within the bad range, it is not a guarantee that you will be approved for a credit card that requires bad credit. Card issuers look at factors more than just your credit score, including income and monthly housing payments.
How to improve a bad credit score
If you have a bad credit card, take some time to review your credit score and determine the cause. You may have missed payments or have a balance that is past your bill due date. In order to achieve a fair, good or excellent credit score, follow the credit building tips below.
- Make payments on time. Payment history is the most important factor in your credit score, so it is essential that you always pay on time. Consider setting up automatic payment to ensure payments are on time, or choose reminders through your card issuer or mobile calendar.
- Pay in full. Although you should always pay at least the minimum payment, we recommend paying your bill in full each month to reduce the usage rate, which is the percentage of the total credit limit you use. To calculate your usage rate, divide your total credit card balance by your total credit limit.
- Don’t open too many accounts at once. Every time you apply for credit, whether it’s a credit card or a loan, and regardless of whether you’re approved or denied, an inquiry appears on your credit report. Inquiries temporarily reduce your credit score by nearly five points, although they rebound within a few months. Try to limit applications as needed and shop with prequalification tools that don’t harm your credit score.
How to get a free credit score
There are dozens of free credit score services available that offer free FICO score or VantageScore. Here are some popular free credit score sources.
Information about Capital One® Secured Mastercard® has been independently collected by CNBC and has not been reviewed or provided by the card issuer prior to publication.
For Discover it® Secured Credit Card rates and fees, click here.
To see rates and fees for Discover it® Balance Transfer, click here.
Editorial note: The opinions, analyses, reviews or recommendations in this article are those of the editorial board alone, and have not been reviewed, approved or otherwise endorsed by any third party.