You’re probably wondering what’s a good and bad credit score, right? If you’re considering getting a loan, line of credit or credit card, you should first know where you stand by knowing your credit score.
A good or bad credit score plays a key role in determining your repayment terms, interest rates and credit limit. This article shows you which credit score is good or bad and how to build your credit score.
To Understand What’s a Good and Bad Credit Score:
- Know What a Credit Score Is
- Understand What a Good or a Bad Credit Score Is
- Learn How Credit Scores Influence Loan and Credit Card Conditions and Payments
- Know How to Build a Bad Credit Score
- Understand How to Apply for Loans with a Bad Credit Score
Curious? Let’s dive in!
1. Know What a Credit Score Is
To know what’s a good or a bad credit score, understand what a credit score is. A credit score is a three-digit number from 300 to 850 that shows your creditworthiness. The higher your credit score, the better your potential lender considers you for credit. Factors that affect your credit history—such as debt levels, repayment history, open accounts, etc.—determine your credit score.
Understand that different credit score models consider many factors to calculate your credit score. The popular credit score models most lenders use are FICO and VantageScore models.
FICO score uses information from your Equifax, TransUnion or Experian credit history to calculate your credit score. To have a FICO score, you must have at least one credit or loan account with a minimum of six months longevity and the account is reported to a credit bureau in the last six months. VantageScore works similarly to FICO credit score model.
2. Understand What a Good or a Bad Credit Score Is
To understand what’s a good or a bad credit score, know what the phrase “good or a bad credit score” means. Check the FICO’s scoring model below to know where you stand.
- Exceptional: 800 – 850
- Very Good: 740 – 799
- Good: 670 – 739
- Fair: 580 – 669
- Poor: 300 – 579
If your credit score is less than 670 (Fair and Poor using FICO scoring model), it is a bad credit score—and lenders see you as a potential risk. Expect to pay higher interest rates on loans or credit cards with a bad credit. If your credit score is 716 and above on the FICO scoring model, it is a good credit.
Check the VantageScore model below to know where you stand.
- Excellent: 781 – 850
- Good: 661 – 780
- Fair: 601 – 660
- Poor: 500 – 600
- Very Poor: 300 – 499
If your credit score falls between 300 and 660 on VantageScore (Fair, Poor, Very Poor), it is a bad credit score. To have a good credit score on the VantageScore model, maintain a credit score not less than 698.
3. Learn How Credit Scores Influence Loan and Credit Card Conditions and Payments
To know how a good or a bad credit score works, learn how credit scores influence loan and credit card conditions and payments.
Lenders and credit card issuers check your credit score to predict your level of reliability at repaying your debt. So if you have a bad credit score (anything below 670 on FICO score) you prone a higher risk to your lender and your chances of getting a loan or new credit are low.
Don’t think you can’t get a loan or new credit with bad credit. You pay more on interest and higher monthly installments. Build your credit score to pay lesser interest rates and enjoy a more favorable repayment terms.
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4. Know How to Build a Bad Credit Score
Building a bad credit score doesn’t happen overnight. To build a bad credit score or improve your credit score from good to very good, follow the guidelines below
Avoid late bill payments
To build a bad credit score, pay your bills on time. Understand that all late payments, irrespective of how insignificant they are, affect your credit score negatively. Automate your payments or sign-up with a payment reminder service so you can keep track of time. Clear your bills if you can. Alternatively, set a minimum amount the system to initiate each month to be on time on all payments.
Avoid debt
To boost your credit score, stay completely out of debt. If you have tight financial commitments such as vehicle loan, home mortgage, and more, you can’t stay out of debt overnight. However, consider other minor debts you owe and clear them. Set a budget and stick to it. Ensure your monthly expenses is not more than your income. Write a list of what to buy before entering a store and avoid impulse purchases.
Open new credit accounts if you really need them
To enhance your credit score, open new credit accounts only when it is necessary. Unless it is necessary or you have a good credit score, don’t accept any credit card company promotion that invites you to apply for a new credit card so you can enjoy discounts and other benefits. You invite inquiries into your account each time you apply for new credit. Inquiries temporarily causes your credit score to decrease.
Keep Eyes on Your Credit Report
To build a bad credit score, consistently check your credit report. Look out for mistakes and errors in your credit report to be sure that nothing you’re unaware of hurts your credit score. With Experian, Equifax or TransUnion, you check your credit report once (for free) in a year. If you notice any error in your credit report, inform your credit agency immediately for review and removal.
5. Understand How to Apply for Loans with a Bad Credit Score
You are not creditworthy with a bad credit score—and most lenders and credit card issuers will carefully select they type of loan they approve you for. To boost your chances of getting a loan approval with a bad credit:
Ensure you can repay before applying for a loan
Applying for a loan you can’t repay causes more harm to the credit score you’re building. First, check a loan’s monthly installment payment amount before applying for it. Can you meet up with the deadline? If your monthly budget can’t cushion a new loan, avoid it.
Consider different alternatives
Getting a bad-credit loan is a win-win situation for you and your lender.
Here’s how: You get a loan to meet your needs and your lender charges more interest rates. Hence, research different loan types for bad credit and choose the one that’s mostly favorable to you. Avant, Upgrade, LendingClub, LendingPoint, etc., are few lenders to consider for bad credit loans.
Ensure you compare the lenders’ terms and conditions before choosing your best fit.
Consider a secured loan
Solid collateral can cancel out the effect of a bad credit score and boost your chances of getting a loan. Additionally, you enjoy lower interest rates and friendly repayment terms with a secured loan.
Consider the consequence—forfeiting your asset if you default payment—that comes with a secured loan before submitting your application.
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Recap
To understand what’s a good and bad credit score, know what a credit score is, understand what a good or a bad credit score is, and learn how credit scores influence loan payments. Know how to build a bad credit score and understand how to apply for loans with a bad credit score.
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