This is an interesting topic for me to write. I am almost obsessed with my credit score. I check my latest score every now and then, if not every week. In 2016, the average credit score was 699. This is in the “good” range. But what is considered a bad credit score?
While there are different credit tiers we all know about, do they mean you don’t qualify for loans, credit cards, a house, a car, and other necessities? It’s important you know what your credit score means to your financial health.
Here’s what your credit score means, from a poor credit score to the lowest credit score.
Credit Score Tiers
In case you didn’t know, each credit score is grouped in categories. These categories range between “excellent credit” at the highest and “bad credit” at the lowest. Here are the tiers:
- Excellent credit: 750+
- Good credit: 700-749
- Fair credit: 650-699
- Poor credit: 600-649
- Bad credit: below 600
But these are only broad terms. While excellent and good credit opens you up to more financial opportunities, those with poor and bad credit can still access these benefits. You just need to know where you stand and what options are available.
How to Find Out Your Credit Score?
If you suspect you have a poor or bad credit score, you should know your score before applying for a loan, credit card, or other financial necessities. There are a couple of ways to check your credit score.
First, see if your bank offers a free credit score lookup. If your bank doesn’t offer this, there are a myriad of websites that offer a free credit score report.
All three banks where I have a checking account provide free Transunion credit score. Even all of my credit cards provide a section to see latests core and credit report.
Fortunately, these are soft checks, meaning they won’t affect your credit score. A hard check, such as checking your credit score for a loan or a credit card, will affect your credit score.
What Can You Not Get With a Poor Credit Score?
A poor credit score does leave you at many disadvantages. But you aren’t completely exempt from all financial necessities. Here are a few things to know if your credit score is between the range of 600 and 649.
Rewards Credit Card
If you have bad credit, qualifying for anything seems impossible. However, you have options. You may need to jump through some hoops and do your research before qualifying for simple things such as a loan or a credit card.
Reward credit cards with hefty sign-up bonuses are out of your reach, cards with excellent travel perks are off-limit too.
Extremely difficult for you to secure a personal loan or business loan. There is still a chance you can get a loan, even if you sign up for a loan that checks your credit score. But other factors will come into play. Examples include your income and your past credit history.
If you want to buy a house but have a poor credit score, it’s best to prioritize improving your credit score. Many mortgage lenders won’t accept your application if your score is below 650.
You can buy the house in your partner’s name while trying to improve your credit simultaneously.
What Can You Get With a Bad Credit Score?
You can still get a credit card, but you’ll have some limitations. First off, your acceptance will depend on the credit card you’re applying for and it will largely depend on the lender.
You can qualify for some credit card perks and other credit card benefits, such as one with no annual fee and even a store credit card.
But you can’t qualify for all credit cards or higher-tiered credit cards. For example, you likely won’t qualify for credit cards with impressive sign-up bonuses.
Like credit cards, qualifying for a loan isn’t impossible. But the lender will probably give you a higher interest rate if you have a bad credit score. Your overall acceptance rate will also be lower than if you had better credit.
Fortunately, lenders such as Bonsai Finance have other alternatives. This includes not checking your credit score but looking at your income and your financial history instead.
Rentals, and Apartments
It’s unlikely you’ll qualify for a mortgage with a bad credit score. But what about qualifying for an apartment rental? It’s possible but more challenging.
Some landlords and property managers won’t accept tenants below a certain credit score. In addition, the utility company may also check your credit score and deny you coverage.
See if you can find an apartment complex or landlord that doesn’t do credit checks. You should also provide extra paperwork to prove you can afford your rent.
Other challenges with bad credit history
Those with a bad credit score also have another setback. They may not qualify for many basic goods and services. Some of these include:
- Cell phone
- Starting a business
Before trying to buy or invest in any of these necessities, make it a point to increase your credit score first.
What If You Have the Lowest Credit Score?
Experian considers the lowest credit score to be in the 300 range. Fortunately, not many people have that bad of a credit score. The only time you should truly worry is if your credit score is around the 580 range.
What If You Don’t Have Credit?
There are times when no credit is just as bad as bad credit. But how do you gain a credit score if you don’t have credit? You can qualify for different credit-building products.
A low-balance or secured credit card is usually the first step in building credit. Instead of qualifying for a high-balance, such as one in the $3,000+ range, lenders will approve your credit card for a balance of about $250.
As you start using and paying off the credit card, your limit will increase. This will help build a positive credit score.
The lender will look at various other aspects that determine your creditworthiness. Your financial history, income, and the amount in your checking and savings are common factors.
Improve Your Credit Score for Better Financial Health
I came to this country in 2005 and by 2009 I reached 700+credit score and when I started with paying mortgage and car loan, my score reached 800+. If I could do this, anybody can do this. Just pay off your bills every month, without fail
Even if you have the lowest credit score, there are many opportunities to get a credit card or a loan. But the key to financial health is to improve your credit score and increase your income.