What is a bad credit score?
And how do I fix it?
A bad credit score is a heavy burden to carry. Not only can a poor score hinder your chances of getting approved for mortgage loans, apartment applications or buying a car, but it can also prevent you from getting certain jobs.
Determining which factors are most important and how your payment history plays a role can be an overwhelming process, but don’t be discouraged!
First, know that a bad credit score isn't forever, but there are ways you can work towards improving it today. Let’s start by examining what is considered bad credit according to each of the two main scoring models, FICO and VantageScore.
What is a bad FICO credit score?
A bad FICO credit score is anything below 670 that falls into the “fair” or “poor” range. Though there isn’t a score that is officially considered to be “bad,” both the fair (300-579) and poor (580-670) ranges are seen as bad in the eyes of lenders, as they signal that the applicant may not be able to repay a loan or honor a credit agreement.
Here’s how each of the “bad” credit scores could impact you:
- A score below 580 may mean you struggle to secure credit, rental applications, or loans altogether.
- A score between 580 and 669 may mean you’ll face higher interest rates and fewer opportunities to obtain credit.
- Meanwhile, a FICO score of 670-739 is considered “good,” a score of 740-799 is “very good,” and a score of 800 or more is deemed “excellent.”
The higher your score, the less risky you will appear to potential lenders. Higher scores will lead to more opportunities and more favorable terms when searching for credit or financing.
The average FICO score in 2021 sat comfortably within the “good” range, at 716 points.
| Score | Rating | What this means |
|---|---|---|
| 300-579 | Poor | Applicants may have access to secured credit or credit cards that require a deposit. |
| 580-669 | Fair | Applicants may be able to access credit, but terms may not be favorable. |
| 670-739 | Good | Applicants will be able to access entry-level to mid-level credit cards and loans with average interest rates. |
| 740-799 | Very good | Applicants will have access to a range of mid-to-top-tier cards with favorable interest rates. |
| 800+ | Excellent | Applicants are considered very low-risk and will have access to a greater number of cards with extremely favorable terms and high limits. |
How is a FICO Score calculated?
The FICO Score is the most used of the two credit models. Developed by the Fair Isaac Corporation, it’s an industry standard. It uses the 300-850 range to group consumers into five categories.
FICO determines your score by pulling information from the three primary credit bureaus, Equifax, Experian and TransUnion, and then dividing it into five weighted factors.
- Payment history - 35 percent: Payment history marks how consistently bill payments were made in full and on time. This includes things like credit cards, mortgages, and loans.
- Amount owed - 30 percent: The total amount of money owed on your credit accounts, whether open or closed, will have a significant impact on your credit score. Keep in mind that if your utilization is too high, financial institutions may believe you are overextended.
- Length of credit history - 15 percent: Your length of credit history is the amount of time that the credit accounts have been open. As such, keeping your oldest accounts in good standing can help contribute to a higher score.
- New credit - 10 percent: Each time you apply for a new line of credit, it triggers a hard inquiry. Too many new accounts in a short period of time can be seen as a red flag to financial institutions.
- Credit mix - 10 percent: Having a mix of different types of credit is seen as being financially responsible. This includes everything from revolving lines of credit, such as credit cards, to installment loans like a mortgage or auto loan.
What impacts your credit score?
New or old, there are a lot of factors that can cause you to have a bad credit score. Here are a few that can push you into bad credit territory:
- Late payments: Even one late payment can have a major impact. Credit issuers are likely to report your tardiness even after one payment is late for more than 30 days.
- Partial payments: If you make a late payment but don’t pay the full amount, your credit report will show the partial payment. These are still recorded as delinquent and may be reported to credit bureaus as well.
- Charge-offs: Your creditor may charge off your debt if you’re delinquent for 180 days or more. They may write the debt off as a loss and hire a collection agency to collect the debt from you.
- Accounts in collections: Accounts in collections are considered seriously delinquent and will have a significant impact on your credit score. Keep in mind that even if you’ve paid a collector, the negative impact on your score may remain unless you request a pay-for-delete letter.
- Foreclosure: The impact of foreclosure is severe and long-lasting. Not only do you lose your home, but the foreclosure will also stay on your credit report for seven years and will make it extremely difficult to secure another home loan.
- Repossession: Like foreclosures, repossessions—or repos—will remain on your credit report for seven years. Generally, most lenders aren’t looking to repossess goods, and they will be willing to negotiate a payment plan that is convenient for both parties.
- Filing for bankruptcy: Bankruptcy is a legal process that releases you from the responsibility of repaying certain debts. There are two primary types of bankruptcy for individuals, Chapter 7 and Chapter 13. Chapter 13 bankruptcy remains on your credit report for seven years from the date you file while Chapter 7 bankruptcy will remain on your credit report for up to ten years.
- Closing credit card accounts: When a credit card is paid off and closed, the credit history is lost and reduces the overall credit history on a credit report. It can also reduce your total credit, impacting your debt-to-credit ratio. Both of these factors can have a negative impact on your credit score.
How to fix your credit score
Repairing your bad credit score starts with admitting where you financially stand and then getting help from someone you trust. It may not be where you want to be right now, but it is where you have to start.
It's easy to get advice about fixing your credit from family, friends and hundreds of websites on Google, but be careful because there's not a one-size-fits-all solution.
Everyone's situation is different and what works for some may not work for others. Some people can fix their credit on their own, while others may need a little guidance. Whichever method you're considering, decide on one that you’re comfortable with.
Here are a few options to consider when beginning your credit repair journey.
Regularly review your Annual Credit Report and credit score.
Checking your credit report allows you to see all of the activity in your open accounts. You can see things like changes to the report, processed transactions and dispute errors. Being aware of what’s happening on your credit report is the key to improving your credit score.
Create a money management plan to organize bill payments.
Getting organized with your money will help you make payments on time and have more control over your finances.
Pay bill minimums on time.
Paying a bill's minimum should be your new priority. You may not be able to pay off the entire balance, but meeting the monthly minimum shows creditors that you care about your financial health.
Sometimes all you have to do is ask for help! Many lenders will offer financial hardship programs to those that can't make regular payments. For example, debt solutions programs can help minimize monthly payments, which can help raise your credit score.
Ask a family member to be a cosigner on your credit.
Asking someone that you trust to be a cosigner may not be easy, but can be a solution to helping you improve your credit. Essentially, the person you ask will need to have “good” to “excellent” credit. They will vouch to the lenders that you will make payments on time. (However, if the borrower—A.K.A. you—missed any payments or is delinquent, then the cosigner will be responsible.)
Apply for a secured credit card.
Secured credit cards work by allowing you to deposit a set amount of money on the card. These cards are shared with the three credit bureaus and appear on your credit report, helping you build positive credit.
Sign up for a credit freeze or credit lock.
A credit freeze is a free service that will only allow the lenders that you approve to perform credit pulls. This is also a good method for preventing identity theft and credit fraud.
You never need
to
pay to freeze or unfreeze your credit with
Equifax, Experian, or TransUnion - it's a free legal right. Avoid credit-bureau ads for "credit locks" unless you're okay paying for convenience services that aren't required.
Consider hiring SNAP Credit Fix
Working with SNAP Credit Fix could be the game changer that you have been looking for. Not only will I help you create a personalized plan to improve your credit, but I also can handle negotiations with creditors and credit bureaus on your behalf--so that you don't have to face it on your on.
Bad credit isn't your destiny it's just a chapter, not your whole story. Taking that first step to fix it puts you back in control and sets the stage to rebuild your credit and step into a stronger financial position.
Note: The information provided on SnapCreditFix.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.
