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What Is A Bad Credit Score? – Forbes Advisor

What Is A Bad Credit Score?
Written by Publishing Team

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A bad credit score can make it difficult for you to qualify for a loan. If your score is too low, this increases the chances of your loan being rejected. And even if the lender approves your loan, you will likely be charged a higher interest rate.

Because lenders often use different credit scoring forms or internal guidelines, what counts as a bad credit score varies. However, we can give you an idea of ​​how good or bad your score is based on credit scores from two of the most popular credit scoring models – FICO and VantageScore. We’ll also show you how to improve your credit score.

What is a bad FICO score?

FICO Score 8 – the most widely used version of the FICO scoring form – ranges from 300 to 850. Borrowers with lower scores present a greater risk to lenders. According to this model, a score of 669 or lower is not a good credit score. Furthermore, scores between 580 and 669 are considered fair; Scores below 580 are considered poor or poor.

In addition to the FICO Score 8 form, some lenders use different FICO score forms for different types of loans. For example, when applying for a car loan, the lender may use your FICO Auto points. This score ranges from 250 to 900; Higher scores represent lower risks.

What is Bad VantageScore?

The VantageScore credit model also has a range of 300 to 850. However, according to this model, a credit score of less than 661 is not good. Scores between 601 to 660 are considered fair. Anything below this range is considered bad, bad (500 to 600) or very bad (300 to 499).

How to improve a bad credit score

If your credit score is poor, you can take steps to improve it. Here are five actions you can take:

1. Review your credit report. Your credit score is based on the information included on your credit report. If it shows negative information, it will damage your credit score. Reviewing your credit report at least once a year can help you spot and correct reporting errors if you have any. You can view your reports for free weekly until April 20, 2022 by visiting AnnualCreditReport.com.

2. Pay your bills on time. For both credit scoring models, payment history is a huge factor. If you pay off your debts on time, it can build or improve your credit score. However, payments that are 30 days late can cause serious damage to it. One way to make sure your bills are paid on time is to sign up for AutoPay.

3. Consider getting a building credit loan. A credit building loan is a loan designed to help you build your credit score. Unlike traditional loans, the lender does not give you a lump sum of cash. Instead, you have to make fixed installments into an account. Lenders still charge interest on this type of loan, but in some cases, you can get it back when the loan term expires.

4. Apply for a loan with one of the signatories. If you need a conventional loan instead, consider applying for a loan from one of our co-signers. A participating site with good credit and a decent income can increase the odds of loan approval. Paying off the loan on time can improve your score.

5. Become an authorized credit card user. Another action involves helping another person be listed as an authorized user of a family member or friend’s credit card. If the person adding you has a good payment history on the card, it can boost your points.

How a bad credit score can affect you

Bad credit scores can hurt you financially in many ways, including:

• Higher interest rates. In general, having a lower credit score means that lenders will charge higher interest rates to compensate for the risk. If a loan is approved at a high interest rate, this can significantly increase borrowing costs.

• Failure to meet the credit score requirements of the lender. If your score is too low, you may not meet the minimum credit score requirements for the lender. For example, lenders typically do not approve borrowers with a FICO score of less than 580 unless they have a co-signer. Also, some lenders only accept borrowers with excellent credit scores.

• Rent an apartment. When you are trying to rent an apartment, the landlord may charge you a higher security deposit. In addition, some landlords may require you to pay the first and last month’s rent in advance.

• Apply for a mortgage. Bad credit often increases the down payment amount to qualify for a mortgage loan. For example, a Federal Housing Administration (FHA) loan allows you to repay 3.5% if your credit score is at least 580. If it’s below that limit, you can still qualify, but the down payment amount increases to 10%.

• Apply for a car loan. If you need to apply for a car loan, it can be difficult to secure the financing you need. Similar to a mortgage, lenders may require a higher down payment amount. And although some auto loan lenders may advertise loans without a credit check, we do not recommend these loans because they come with exorbitant fees.

• Car insurance rates. Some auto insurance companies will charge you higher insurance rates if you have bad credit.

• Utility accounts. When you apply for a new utility account, the utility company will review your balance. If you have bad credit, you may have to pay a refundable deposit.

Why are good credit scores important

Having a good credit score is important because it helps you to borrow money at lower or 0% interest rates. For example, if you have excellent credit, you may qualify for a 0% APR credit card, which offers interest-free financing for an extended period of time. Using this type of card can save you a lot of money with interest. It can also help you get out of debt faster if you transfer balance from another high-interest card.

Additionally, if you have a good credit score, you can avoid some security deposits and pay lower down payments on some loans. This can free up some of your money to put towards other financial goals and expenses.

When you add up all the savings, a good credit score can save you thousands of dollars over your life.

Raise your FICO® score instantly with Experian Boost™

Experian can help raise your FICO® score based on paying bills such as your phone, utilities, and popular streaming services. Results may vary. See the website for more details.

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When you have a bad credit score, it can be difficult to move forward financially. Since you are considered too risky for lenders, you will find it difficult to access the credit you need. In addition, higher interest rates and down payment amounts can increase borrowing costs. Furthermore, your cost of living can increase. However, the good news is: You can improve your credit score and odds of loan approval by taking some of the steps listed above.

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