Last updated on August 5th, 2020
Bad credit scores impact many aspects of daily life. Having a low credit score can keep you from obtaining a mortgage, finding an apartment to rent, or even prevent you from getting a credit card. While those with an excellent or low credit score likely know where they stand, for those in between the situation gets murkier. Do you ever find yourself wondering, “Just how bad is my credit score?” Here’s what you need to know:
What Is a Bad Credit Score?
Credit scores range from about 300 to 850 – depending on the credit scoring model used – with a higher score meaning better credit. There are two major credit scoring systems, FICO and VantageScore. FICO is the oldest – and most widely-used – scoring model, while VantageScore is a relatively new model.
What is a Bad FICO Score?
A credit score between 300 and 579 is considered “bad” in the FICO Score model. According to Experian, one of the three major credit reporting bureaus (the others being Equifax and TransUnion), 16% of Americans suffer from a bad credit score. Of those with poor credit, the vast majority have a credit score in the 500s. Only those with severely damaged credit, or no credit history at all, will have a score in the 300s.
What is a Bad VantageScore?
VantageScore differs from FICO in that it places greater emphasis on newer credit. That said, the model is similar regarding the range of scores, though the model breaks them down into “poor” and “very poor.” A Vantage Score of 300 to 499 is very poor, while a score between 500 to 600 is considered poor.
What Are the Negatives of Having Bad Credit?
Poor credit makes it much tougher to get approved for loans. Bad credit scores make banks unlikely to accept applications for credit cards, personal loans, mortgages, and auto loans. Where those with a bad score can find a lender, they will only offer higher interest rates. With high interest, the cost of servicing those loans can quickly overwhelm a budget, leading to financial hardships.
Bad credit also impacts other areas of life. Employers and landlords can access an applicant’s credit report to gauge their suitability for a job or apartment. Poor credit can make it difficult to land a dream job or get that new apartment because they pose too much of a risk. Poor credit also raises insurance premiums – and can cause insurers to cancel policies.
What Factors Impact Your Credit Score?
What are the items and factors that influence FICO scores? And what factors influence a VantageScore?
FICO places significant weight on payment history, as this is the biggest indicator of a person’s ability to repay any new credit they may receive. Nearly as important is the amount of available credit that individual is currently utilizing, which makes up 30% of the score. Of less significance (but still important) are the types of credit a person has, the number of hard inquiries they have in the past 12 months, and the length of their overall credit history.
The VantageScore model places a much greater emphasis on types of credit (or credit mix) than FICO. Equally important, however, is payment history.
What Can I Do to Fix My Bad Credit?
While bad credit is a serious financial issue, it is also one that is fixable. Here are some of the proactive steps you can take to improve your finances and boost your credit score.
Use a Credit Monitoring Service
One of the simplest ways to begin improving your credit score is by signing up for a credit monitoring service. Using a monitoring service, like MyFICO or TransUnion, can help you see exactly what your credit score is and provide you with concrete steps to boosting it – fast.
Consolidate or Refinance Your Debts
Those struggling with debt should also consider applying for a debt consolidation loan to eliminate multiple monthly payments into one, simple-to-manage payment. Alternatively, discuss refinancing options with your current lenders to try and reduce your monthly payments.
Find a Fresh Start Unsecured Credit Card
While not every bank is willing to take a chance on someone with bad credit, there are still some good credit card offers for those repairing their credit score. Known as “subprime” credit cards, or “fresh-start” cards, these cards typically come with higher interest rates and lower credit limits.
Using these cards sparingly and paying the balance in full each month, however, can quickly boost your credit score. Even better, some cards, like the Reflex Mastercard® Credit Card, offer the chance of a higher credit limit with responsible use.
Some of the best unsecured credit cards for bad credit include:
- Extended warranty protection
- Fraud liability
- Price protection
- Reports to major credit bureaus
- Regular Purchase APR: 24.9%
- Cash Advance APR: 29.9%
- Cash Advance Transaction Fee: $0 during the first year; after first year, either $5 or 5% of the amount of transaction
- Penalty APR: 29.9%
- Annual Fee: $35 to $99
- Foreign Transaction Fee: 1% of the transaction amount in U.S. dollars
- Late Payment Penalty Fee: Up to $40
- Return Payment Penalty Fee: Up to $40
- Over Limit Penalty Fee: Up to $40
- Reporting monthly to all three major credit reporting agencies
- All credit histories considered for this no security deposit credit card
- Perfect credit not required for approval; we may approve you when others won't
- Get the security and convenience of a full-featured, unsecured Visa® credit card - accepted at millions of merchant and ATM locations nationwide and online
- $300 credit limit (subject to available credit)
- Regular Purchase APR: See Terms
- Cash Advance APR: See Terms
- Cash Advance Transaction Fee: See Terms
- Annual Fee: See Terms
- Late Payment Penalty Fee: See Terms
- Return Payment Penalty Fee: See Terms
- See if you’re Pre-Qualified with no impact to your credit score
- Free access to your Vantage 3.0 score from TransUnion* (When you sign up for e-statements)
- Monthly reporting to the three major credit bureaus
- Use your card at locations everywhere Mastercard® is accepted
- Regular Purchase APR: See Terms*
- Cash Advance APR: See Terms*
- Cash Advance Transaction Fee: See Terms*
- Annual Fee: See Terms*
- Foreign Transaction Fee: See Terms*
- Late Payment Penalty Fee: See Terms*
- Return Payment Penalty Fee: See Terms*
Get a Secured Credit Card
Those struggling to get an unsecured credit card may also decide on a secured credit card to boost their poor credit. Secured credit cards differ from unsecured cards in that they require a deposit that acts as both collateral for the credit line, and as the credit limit. A $200 deposit, for instance, yields a $200 credit limit.
Secured cards are great because they are among the easiest credit cards to get, making them perfect for those with poor credit. And, with proper use, you can boost your credit score quickly.
The best way to use a secured card is only to use the card for smaller purchases. This practice keeps the credit utilization rate low – ideally below 10%. Keeping your credit use under 10% is the fastest way to raise your score. Equally important, however, is paying the statement balance in full each month – doing so can help you upgrade to an unsecured card in no time.
Some cards, however, like the First Progress Platinum Prestige Mastercard® Secured Credit Card, offer exceptionally-low APRs, making them perfect for building credit and carrying a balance.
Some of the top secured credit cards for bad credit scores are:
First Progress Platinum Prestige Mastercard® Secured Credit Card
No Credit History or Minimum Credit Score Required
- Get a fresh start! A discharged bankruptcy still in your credit bureau file will not cause you to be declined
- Quick and Complete Online Application; No credit inquiry required!
- Full-Feature Platinum Mastercard® Secured Credit Card; Try our new Mobile App for Android users!
- Monthly Reporting to all 3 Major Credit Bureaus to Establish Credit History
- 24/7 Online Access to Your Account
- Nationwide Program though not yet available in NY, IA, AR, or WI ** See Card Terms
- Includes Free Real-Time Access to Your Credit Score and Ongoing Credit Monitoring powered by Experian
- ¡Hablamos Español! Nuestros representantes de servicio al cliente hablan Español con fluidez para su conveniencia.
- Regular Purchase APR: 9.99% variable based on the Prime Rate
- Cash Advance APR: 18.99% variable based on the Prime Rate
- Cash Advance Transaction Fee: Either $10 or 3% of the amount of each cash advance, whichever is greater
- Annual Fee: $49
- Foreign Transaction Fee: 3% of the transaction amount
- Late Payment Penalty Fee: Up to $40
- Return Payment Penalty Fee: Up to $29
- Minimum Deposit Required: $200
- Build credit with on-time payments
- Reports to the three leading credit bureaus
- Credit limist between $200 and $3,000
- Visa benefits and protections
- Regular Purchase APR: 17.39% variable based on the Prime Rate
- Cash Advance APR: 17.39% variable based on the Prime Rate
- Cash Advance Transaction Fee: Either $6 or 5% of the amount of each cash advance, whichever is greater.
- Annual Fee: $35
- Foreign Transaction Fee: 3% of each transaction in U.S. dollars
- Late Payment Penalty Fee: Up to $38
- Return Payment Penalty Fee: Up to $25
- Minimum Deposit Required: $200
Related Article: What are the best secured cards of 2020?
Summing It Up
A bad credit score can severely impact your life – but only if you let it. While poor credit is a problem, it is one with a simple solution that takes time and patience to achieve.
Actively monitoring your credit score, improving it with debt consolidation, and learning good financial habits are essential to eliminating the issue of bad credit once and for all. Get the right credit card, keep your credit utilization low and pay your balance on time, and your poor credit score will soar in no time!
Related Article: 5 Tips for Maintaining a Good Credit Score
FICO and VanatgeScore images courtesy of RewardsExpert.com