How to check your Bad Credit Score

How low does a credit score have to be for it to be considered bad credit? How much can such a credit score affect one’s life and is there any hope for people with bad credit?

Your life can become very complicated if you have a bad credit score. This is simply because lenders and most other financial institutions use these scores to determine your creditworthiness. A low credit score raises all sorts of red flags reducing the number of companies that are willing to offer you financial assistance.

But, how low does the score has to be for you to be worried? Well, the most popular and commonly used credit score is from FICO. The FICO scoring system uses data from all the three major credit bureaus in the market. Each of these credit bureaus has their own scoring system which produces results based on your financial decisions.

FICO Score

The FICO system pulls the data from all these bureaus analyzes them and comes up with a comprehensive score ranging from 300 to 850. Based on this system, 300 is the lowest and poorest credit score possible while 850 is the highest achievable score. The system is then broken down into various parts that help lenders to estimate your creditworthiness with ease. According to most financial institutions, a credit score of 750 and above is considered “excellent” while a score of between 700 to 749 is “good.” A score of 650 to 700 is “fair”. Anything below 649 is usually considered as a bad credit score.

To know where exactly you lie, you must apply for your credit score. You can get this score for free from different online platforms. A credit score obtained from these platforms doesn’t provide as much information about your credit record as a report from the three major bureaus would. Therefore, if you want to know about your score and the reason behind it, you should apply for the full report from the credit bureaus.
How will a bad credit score affect you?

A bad credit score will affect you in so many ways. Here are a few of the issues that you will have to deal with:

a. Difficulty getting your loan and credit card applications approved

It’s rather obvious that most lenders won’t be willing to accept a loan application from someone with bad credit record. Credit scores are the easiest way of estimating the likelihood of someone repaying a loan. Most lenders will, therefore, turn down your loan applications as soon as they see your credit score. If you are lucky, you might find a few companies that are willing to look at various other factors such as your income before determining whether they should approve your request or not.

b. High-interest rates and strict terms on loans and credit cards

The few lenders that are usually willing to overlook bad credit score and approve loan applications do so at a steep price. These loans come with high-interest rates, yet the same lender will offer the same loan to another person with a better credit score at a much lower interest rate. Yes, I know it sounds unfair, but that’s the price of having a bad credit record. If you are looking to get a mortgage, you will also be required to pay high-interest rates or a bigger down payment.

Interest rates aren’t the only thing that will be affected by your bad credit score. The lender will go a step further to include highly restrictive terms in the final draft of the loan. You are also likely to see more fees and other penalties attached to the loan agreement.

c. Difficulty in renting an apartment

Initially, it was only renters of modern apartments found in good neighborhoods which used to conduct credit checks before approving an apartment lease. This practice has, however, spread to almost all states. Statistics show that individuals with bad credit records tend to make late rent payments and this is something that all landlords want to avoid. Your credit score will, therefore, reduce your apartment leasing options significantly. It may even influence where you will end up living unless you become proactive and use other tools such as income and bank statements to prove to your landlord that you are financially stable.

d. High insurance premiums

Some homeowners and auto insurers checkup credit scores before coming up with an appropriate policy for you. You can expect to pay higher premiums in case your credit record has outstanding debts and untimely payment histories. The good news is some states ban these entities from checking people’s credit records.

e. Difficulty getting a cell phone contract

A lot of cell phone companies usually conduct credit checks before signing you up. They do these checks to determine whether they can rely on you to make your monthly payments on time. With a bad credit score, you may end up using prepaid cell phones or a month-to-month contract both of which are quite expensive.

f. Difficulty securing employment

Credit record doesn’t affect one’s job performance, but some employers will still check up your credit record before offering you a contract. This practice is especially common when applying for upper management positions and in other openings within the finance industry. In most cases, the employers are not interested so much on the score but on the items within the score that could potentially affect your performance. You might be lucky if you want to work in Illinois or Connecticut because these states forbid this practice.

Can I improve my Credit Score?

Yes, you can. A bad credit score is damaging, but you can still turn things around. Here is how you can do it:

a. Apply for your credit report and analyze it

Get your credit report from all the three major credit bureaus in the market and review them. The first thing to do is to check for any possible errors or outdated details that could be dragging your record. In case you come across such errors, initiate the process of getting the issue rectified as soon as possible. You can raise a dispute with the creditor responsible for the error, or you can write a letter to the credit bureau and raise your concerns.
Secondly, you can look for the main issues that damage your credit score. Check whether it is late payments or unpaid debts that ruining your record. By identifying these items, you will know the financial behaviors that you need to correct. You should also start to pay off any balances that you might have.

b. Increase your credit limits

Spending more than your credit limit will hurt your credit record. On the other hand, using a smaller percentage of the limit paints a bit of a good picture. You can, therefore, avoid maxing out on your credit limit by having the limit increased. Once the limit is raised, the amount owed will now be a smaller percentage of your limit.
You can also increase your limit by opening another credit card account. In case you decide to open another credit card account, try and ensure that you don’t carry any balances to the card. You should also get a credit card that doesn’t charge annual fees. This allows you to keep the cards open for a long time at no cost thus extending your credit history.

c. Pay your bills on time

Late payments are one of the biggest reasons behind poor credit scores. A single late payment alone could be more than enough to pull down your credit score. Try as much as possible to pay all your bills on time. This will not only boost your credit record, but it will also save you a lot of cash that you could have spent on paying off late payment fees and other penalties.

d. Consider hiring a credit repair company

Most bad credit issues are usually simple enough for you to solve on your own. If you feel like you can’t do it, you can get a credit repair company to help you improve your record. This company will ask for your credit reports, analyze them and come up with a way forward to fixing your bad credit record. They could help you identify some of the issues that you can dispute and may even help you draft letters that you can send to the credit bureaus or other companies when disputing errors in the report.