Your credit score is like a snapshot of your financial health. It lets future lenders know your ability to pay your bills on time and how well you manage your finances. This credit score will help determine your future ability to secure a loan as well as how much you will pay for that loan.
Your credit score can range between 300 and 850. Obviously, the lower you are on the range, the closer you are to having ‘bad credit,’ but just what does a lender consider bad? We explore the things they consider below.
The General Credit Score Range
As we discussed above, the credit score goes from 300 to 850. Very rarely will you find consumers with an 850 credit score or a 300 credit score. They will generally fall somewhere in between. If your score is anywhere between 300 and 579, though, a lender will likely consider this ‘bad credit.’ This doesn’t mean that anything above 579 is ‘good,’ though. Until your credit score is at least 620, it is considered that you have ‘bad or poor credit.’
Once your score is above 620, yet lower than 670, lenders consider your credit score ‘fair.’ Any score above 670 is considered as a good credit score and increases your chances of securing financing. Each lender will have their own requirements regarding what score they need you to have, but it’s a safe assumption that if your score is higher than 670 that you’ll be able to find a good loan program.
What Makes a Bad Credit Score?
You might wonder just how someone ends up with a ‘bad credit score?’ If the range goes as low as 300, how would a consumer even get to that point? While there are numerous ways you could ruin your credit, the two most common factors are:
- The payment history – If you don’t pay your bills on time, it will affect your credit score in a negative way. The more payments you let go unpaid, the more damage you do to your credit score. In addition, the longer you let any one payment go unpaid, the more damage it causes. Credit bureaus report your late payments in increments of 30 days with the first 30 days being the least damaging. After 60 or 90 days of delinquency, many lenders consider charging off your account or sending it to collections, both of which are very hard on your credit score.
- The credit utilization rate – How much of your available revolving balance you have outstanding lets a lender know your ability to manage your finances. Generally, having a balance any higher than 30% of your available balance is considered ‘bad.’ In other words, it can negatively affect your credit score. At the very least, you should try to keep the total amount of your outstanding revolving debt down to less than 30% of the total available balances of all of your credit cards.
There are other factors that affect your credit score too, they just don’t have as much impact. Things like your credit mix, the age of your accounts, and the number of recent inquiries also play a role.
Can you Fix a ‘Bad Credit Score?’
The good news is that your credit score is ever-changing. Even if you have a bad credit score today, it doesn’t mean you are stuck with it forever. With a few good habits, you can repair your credit and secure the good score that you need to get the loan you want.
A few of the good habits you can instill to repair your credit include:
- Pay your bills on time
- Pay your credit card balances down or off
- Keep your accounts open even after you pay them off
- Don’t apply for new credit
- Take care of any collections or judgments
These habits won’t change your credit score overnight, but they will help with consistency though. If you do have a ‘bad credit score,’ it will take time to get your score to fair or average, which are usually the scores that lenders look for when thinking of lending money to you.