Credit score is a number that has a significant impact on the financial life of every single individual. It decides whether you qualify for credit cards, loans, homes, rental housing, and many other benefits. In general, the higher the credit score the better, and the lower the credit score the worse. But what is a actual dangerous credit score that can lead to the repeated refusal?
What is considered a bad credit score
FICO and VantageScore are common credit scores that range between 300 and 850. However, any score below 580 is often termed as very poor and it means that the credit health of the individual in question is not good at all. Here’s a quick overview of different credit score tiers:Here’s a quick overview of different credit score tiers:
- 800-850: Exceptional
- 740-799: Very Good
- 670-739: Good
- 580-669: Fair
580-399: Poor 400-239: Fair 238-119: Good 118-89: Very Good 88-65: Excellent 64-48: Very Good 47-32: Excellent 31-16: Very Good 15-8: Excellent 7-4: Good 3-0: Very Good.
As you can see, if you get below 580, then you are considered high risk as per the lenders. That bottom category is still quite wide though. But what is, therefore, the most dangerous credit rating that one gets and will always be rejected by lenders?
The High-Risk Zone: Patients with a score of 620 or less
According to many sources, credit score below 620 is considered as very high risk and gets very low approval chances for almost any type of credit. Indeed, if your score stands below 620, it identifies you as a subprime borrower to most of the lenders. They link subprime borrowers with high likelihoods of making late payments, receiving account collection, and even defaulting on their loans.
In other words, the sub-620 group has no choice but to turn to predatory subprime lending with highly stringent requirements and excessively high interest rates. Many of the loans and credit cards still involve a large proportion of the down payment or security deposit that needs to be paid initially. Some of the requirements mentioned may include credit scores of at least 680; those with low credit scores below 620 may not qualify at all.
Why a Score Under 620 is So Risky
- Lenders shy off borrowers with scores below 620 for the following reasons:
- Studies show that there is much higher statistical risk of default based on historical consumer data.
- Usually suggests prior severe credit mishaps such as bankruptcy, foreclosure and the like.
- Indicates that the subject has a history of erratic payment conduct.
- There is hardly any historical evidence of responsible credit management.
Advantages of a Good Credit Score
They get more approval chances and much better loan terms when their credit score is raised to above 620. For example:
- A 670 score should be enough to get a credit card with a reasonable $300 credit limit to rebuild credit.
- A 700 score provides approvals for thousands of unsecured credit cards and personal loans with reasonable interest rates
- When above 740, prime mortgages are sometimes issued with single digit interest rates
The higher the can score, the more it means that you are capable of handling the debts and pose little risk of defaulting. Average credit scores allow access to much greater abundance in credit options and favorable interest rates.
How to Raise a Very Poor Credit Rating
Fortunately, it has been observed that discipline and sound financial management practices can help one improve his or her score from a very low or average rating. It just requires commitment and time to be dedicated on child development. It is crucial to develop an action plan and monitor the progress made.
Some tips for raising really bad scores from subprime territory include:Some tips for raising really bad scores from subprime territory include:
- Make all accounts current, meaning the payment for all the existing accounts should be up to date.
- Reduce balances as much as possible
- On the same note, one should always dispute any inaccuracies that may exist on credit reports.
- New credit applications should not be sought until the score has been raised.
- Think about credit builder products or secured cards
- Keep utilization rate of credit cards and other forms of revolving credit as low as possible.
As a result, if there is added effort, a candidate with very low scores can add over a hundred point or more within a couple of years. But it demands consistent order, non-recurrence of errors, and better handling of money on a daily basis. Consistently, responsible habits will accrue on the credit profile and can cause a major score comeback.
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