A credit score is therefore a three-digit number that reflects your creditworthiness. Calculated between 300 and 850, FICO scores fall The final score is always positive, with the greater the score the better it is. While credit ratings below 579 are said to be poor, credit scores over 720 are seen to be excellent. But just what is a poor credit score exactly? Said another way, a negative credit score is any number less than 580. Still regarded as bad or even decent credit at all is a credit score between 580-669. To be eligible for favorable loan and credit card rates most of the time you would need a score of 700 or higher.
Why Should Credit Scores Matter? When weighing loans, mortgages, credit cards, rental agreements, insurance, mobile phone service, and other offerings, Banks and other financial companies use your credit score to gauge your ability to pay back debts. You seem to be more reckless the lower the score. On the other side, if the score is low you seem reckless. Low credit limits, credit and loan rejections, and negative credit scores lead to high interest rates as well as other fees. When you are financially steady, this helps you qualify for the best rates and conditions of credit.
What Leads to Bad Credit Ratings There are a few key factors that damage credit scores and cause bad credit:
There are a few key factors that damage credit scores and cause bad credit:
Financial Responsibility – Delaying payment, missing payments, or having outstanding balances in collections will considerably decrease your score. Credit scores are calculated based on payment history since it has the biggest impact on one’s credit rating. A single month of delay in payment can reduce your score by more than a hundred points. When there are many overdue payments or unpaid debts, it hurts even more.
Credit Utilization – When you rely on most of the credit limits you have approved, it results in a high credit utilization ratio that brings down credit. Industry analysts suggest that utilization should be kept below 30%. This speaks volumes of high risk especially when one has charged up his cards to the highest possible limit or has balances that are near the maximum limit on several cards.
Average age and credit mix – The age of your credit accounts and the proportion of your credit mix including revolving, installment, and mortgage credit. It is also important to note that having too many new accounts within a given period is usually detrimental to your score. Revolving accounts such as credit cards and installment accounts and they prefer both to be in a good ratio.
Inquiries – Each time a lender pulls your report when you apply for credit, an inquiry is made. The reason that too many inquiries within a short period can lower it slightly is. Applying for credit means applying to get a lot of credit simultaneously is considered to be risky for lenders.
Errors – Rather than the correct information reflecting the state of your credit health, incorrect or outdated information on your credit reports will also affect your scores. To remove erroneous information, errors must be contested with the credit bureaus.
How to Repair a Poor Credit Rating The best news is that many things can be done to improve bad credit scores over time. It just requires diligently following healthy credit habits such as It just requires diligently following healthy credit habits such as:
- Ensure all bills are paid on time every month
- While using credit cards, try to keep the balances low and make sure that the credit utilization ratio is below 30 percent.
- Do not have too many credit applications from different creditors within a short period.
- Develop a strategy for dealing with current liabilities
- Check credit reports often and dispute any inaccurate entries.
- Do not shut down credit card accounts because length of credit history is beneficial
- Get authorized on a previously used account by someone else
Furthermore, you can apply for credit builder loans or secured credit cards that are created to increase credit scores. Both involve having to make payments for several months to prove one is a responsible person. It also enables you to sign up for free credit monitoring so that you are able to track your credit score as well as your progress. Raising very bad credit scores requires time and self-discipline but relapsing to the bad habits is very easy. It is not impossible to note that bad credit can be fixed with a certain level of effort.
What is Considered Bad Credit On average, it is clear that the lower the credit score, the poorer it is to get cheap credit terms. Here is a breakdown of bad credit tiers:
Very poor credit 300 to 499 It is an important category that is considered to be high risk by the lenders. Thus, people can have records of severe delinquency, collections, judgments, liens, or even bankruptcy. This is going to have the highest interest rates, fees, and deposit requirements which means that credit is going to be difficult to come by even for nonsubprime consumers.
500 to 579 – Poor credit some subprime lenders may approve them but the rates and fees charged will be relatively high even for borrowers in this range. Will often experience rejections when applying for unsecured credit cards and loans from conventional banks. Some clear indications of reckless conduct as well as bad payment practices.
580 to 669 – This is considered a fair credit score. Considered non-prime. It means people secure more credit than those with poor credit but they have higher than average interest rates and fees to pay. Those closer to 580 will have fewer options than those closer to 669. Still no mortgages and top-tier credit cards without a cosigner or some other positive factor.
As the score rises within each tier, the cost of financing continues to sink in the long run. This way you are also able to track the improvement that results from practicing good credit habits while keeping track of your reports and scores. Still, if the credit score is 580 or lower, this indicates that there are credit problems that need to be addressed. If left unresolved, the problem continues to worsen and pushes the rating down even further. See what your credit score looks like today and set goals to improve it for tomorrow.
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