What Is Considered A Bad Credit Score?

Many people don't really know what is considered a bad credit score, or what they can do to raise it. An illness, divorce or a job layoff can easily leave someone with a poor credit score. I'm going to share with you what a bad credit score is, and what you can do to raise it up into the good range. Improving your credit score can't be done over night, however with a some extra work and patience you can turn your score around and raise it back up. To do this there are some things you will want to understand about what makes up your credit score, so you know what steps to take to improve your situation.

Different Types

The most familiar credit scoring systems, that most people recognize, is the FICO score system (short for Fair, Isaacs & Co., this is the company that markets the scoring system). There are several other credit scoring systems but we will be referring to the FICO score system, as it is the most popular. The "Big Three" credit reporting agencies (Experian, Equifax, and TransUnion) all use the FICO system, which is the standard system in the United States. The scoring system ranges from a low of 300 to 850 (which is a perfect score). You can get your credit history free once a year, but you have to pay a small fee from these companies to get your credit score.

Car Loan Scores

Auto loans and credit cards consider a FICO score of under 620 to be bad, or at least sub-prime. If you have a low credit score not all lenders will loan to you. Don't get discouraged, that doesn't mean you can't get credit. It is always possible to get some form of credit extended to you. Lenders will consider loaning money to someone with a low score, however they are going to assess their risk of loaning you the money. The higher the risk (because of your credit history) the more you will have to pay in interest.

Understanding How The Credit Game Is Played

Once you know how the game is played you can prevent or improve a bad credit score and build a credit profile that satisfies the criteria used to calculate the FICO score system. The number one thing you can do to improve your score is to make your payments on time. Never allow your payments to get more than 30 days past due. If you are already overburdened with too much debt, no lender is going to loan you any more money. Credit card debt, which is unsecured, can be harmful if you owe too much.

Tip For Credit Cards: If you ask your lenders to reduce your credit card limit as you pay them off, you can improve your credit score. Close old credit cards and stop applying for new ones. Doing this once and awhile is okay. Don't get in the habit of opening and closing accounts as lenders see this as poor financial management.

Pay Close Attention

Don't default on student loans. This never comes off your credit report.

Don't ignore collection efforts. They won't go away by themselves. Resolve them as soon as you can.

Avoid tax liens and foreclosures if possible.

If you get into trouble financially by all means consider a debt consolidation loan, it can help reduce your monthly payments.

Always talk with your creditors if you are having problems meeting your obligations, most will work with you to make special payment arrangements. Most creditors won't report this to the credit bureaus because you are working with them and trying to do the right thing by paying your bills.