A FICO under 670 deems fair or poor credit; below 661 is considered bad. Lenders would reference these as “subprime.” Those with these scores would find it challenging to access favorable terms with most credit. Scores in this range make most activities difficult, whether attempting to apply for a new card, trying for a first mortgage, and on.

Most people will find they get lower limits and much higher rates on their credit cards (check out info on credit cards at kredittkortinfo.no to learn more.) Bad credit has even kept people from taking new career positions. Much goes into a credit score and how they work, with many factors playing into a bad number. Let’s check out the fundamentals.

What Deems A Bad Credit Score

FicO and VantageScore are the most widely known credit scoring bodies with a platform that ranges in the same 300 to 850 scale, but their patterns are somewhat distinct.

• FICO scoring ranges

The method for the FICO credit scoring rates credit:

• 800-850 (exceptional)
• 740-799 (very good)
• 670-739 (good)
• 580-669 (fair)
• 300-579 (poor)

The average credit score in 2021 was 716. If your score is below 670, your credit is considered below average or bad.

• VantageScore scoring ranges

The method for the VantageScore credit scoring rates credit:

• 781-850 (excellent)
• 661-780 (good)
• 601-660 (fair)
• 500-600 (poor)
• 300-499 (very poor)

698 was the average score in 2021 and well within this scoring’s good limits. Anything between 300 and 660 is deemed a bad score, with those below 500 very poor.

Factors That Impact Your Score

A credit score is based on what is found in the credit report. The three primary reporting agencies build an individual report for everyone, depending on how you use accounts that are in your name. Five factors that are part of what makes up the credit score with the FICO model;

• Payment history

This component is roughly 35 percent of the score. How you pay and whether you’re on time with repayments on accounts are paramount.

• Credit utilization

Utilization is around 30 percent of the score. It is essentially your “debt to credit ratio” or current balance or the amount you’re using compared with the limit available.

• History

Comprising 15 percent of the score, this speaks to the amount of time you’ve held accounts in your name successfully.

• Credit mix

It accounts for 10 percent and is the different mix of credit held in your account. Lenders want to see that you can manage revolving credit in the form of credit cards and installment loans like auto loans.

• Credit applications

This carries 10 percent of a score and indicates the frequency you apply to new lines of credit.

It’s possible to have a high score but have weaknesses in one or more of these areas. That’s especially true for those new to credit that might have a limited credit history, with maybe one or two cards, meaning not much of a mix. 

It won’t be a challenge to maintain good credit with a decent payment history and by continuing to build on that score without trying to apply for too many too fast.

The Impact Of Bad Credit

There are a few ways a poor credit score can affect you and your life. Let’s look at them.

• Challenging getting approvals

Lenders view poor credit as a risk, meaning they’re less likely to approve those people for credit applications. Banks and financial institutions have stringent qualifications for getting approval for their products. Obtaining approval can be challenging for those with bad credit.

• High rates and restrictive terms

Some lenders have a bit more lenient guidelines and will let less than stellar credit scores pass through approval, but they cover their risk by adding higher rates, so you’ll pay higher amounts in interest, leaving the lender with a bit less risk.

• Insurance premiums are higher

Credit checks aren’t limited to lenders or credit card applications; many states let home and vehicle insurance providers check scores with their risk analysis. The insurer can consider the bad credit as a risk to their company overall and therefore decide to bill a higher premium for coverage.

• Rental can become a challenge

Most landlords will do credit checks on people inquiring about a rental. The landlord doesn’t have access to the score but can see the report in order to look at collections, review payment history, and use other information to deem creditworthiness. Landlords are less likely to rent to someone with bad credit to avoid the risk.

• Has the potential to hurt your career

With written permission, an employer is legally allowed to use your credit report to make hiring decisions. Some states have put protective laws in place to avoid using credit information when making hiring decisions, but others don’t have these.

• Deposit for utilities

Utility companies do background checks on people applying for services. If you have poor credit, they typically require a deposit to acquire utility services.

It’s possible to be proactive in improving your credit report and score, so these things don’t affect your life, especially if you’re already beginning to feel the effects in certain aspects of your life. It takes time and diligence to go from poor to good, but you can do it.

Improving A Bad Credit Score

There are numerous ways to improve a credit score. Essentially it means developing a strategy and taking consistent action to get ultimate results. Here are a few steps you can take to make some improvements:

• Check your reports

The first step is to get a free credit report and score from the three reporting bureaus. Disputing any errors and identifying negative feedback bringing down the score will help you focus efforts to make necessary improvements.

• Avoid late repaying

The payment history of a credit report is a significant portion meaning it’s a prominent factor. Repaying bills on time every time is essential to establishing a solid score. Considering autopayments which make it easy to avoid late repays.

• Lower credit utilization

The credit utilization ratio should remain less than 30 percent of the credit limit. Anything over that is frowned upon. Actually, those with the highest credit scores achieve below 10 percent of their limits. It is possible with discipline. Watch what you spend and pay it off each month.

• Become an authorized user

If you want to improve your payment history or have a shaky score, and you want to improve the payment history, consider if you have a close friend or family member who would allow you to sign on one of their cards as an authorized user. 

The card doesn’t even need to be in your possession, you don’t have to use it, but you can also have full access in every way. Someone with excellent credit will want to keep it that way and can help you get to that point; as an authorized user in name only.

• Self-report

Take advantage of self-reporting. How many accounts and their age allows lenders to see how well you managed debt in the past. If you have a limited history, it can be a challenge. Aside from becoming an authorized user, you can usually self-report the credit report information you choose to add.

A few free programs allow ways to boost the credit history by adding other financial information. You can add utility payments, telecommunication details, banking data, including checking and savings. It’s essential only to add positive accounts to the report.

• Don’t apply too often

Each time you apply for a new line of credit, a hard credit inquiry occurs on your report. It will reduce your score, even if only temporarily; it can be as long as 12 months. 

Research the credit to ensure it’s something you definitely want to pursue and that you have a good chance of being approved before taking the risk. You don’t want to lower the score for something that gets denied. 

It’s unwise to apply for many accounts within a short period or before taking a large loan. There are certain exceptions that the scoring models allow “rate shopping,” but credit cards are not one. 

Checking your own credit report deems a soft inquiry that doesn’t affect credit. Go here for guidance on applying for credit cards with bad credit.

Final Thought

You’re not stuck with bad credit or being denied for credit or loans. Some companies will give people with bad credit a chance but do bump up the interest rate and terms. 

In the meantime, the ideal thing to do is due diligence in improving the score. There are many components and easy ways to make each one better. It would help if you had time, patience, and persistence, and you’ll pull through to the good side of the credit ratings.