It can be confusing when you hear people refer to their credit score as being bad.
Yet not understanding credit can negatively impact you in a variety of ways.
So what is a bad credit score, and contrarily, what is a good credit score? Why do the two matter?
Keep reading for a full breakdown of what they entail.
Why Credit Is Important
Before understanding the different sides of a credit score, you should have a good understanding of what credit is.
Credit is receiving something of value now and then promising to pay the cost back later.
In the past, your reputation alone determined how much people were willing to lend you. Now, creditors can look at your credit history, or credit score. Your score determines how much they are willing to give you.
A good credit score is important, as many other types of people besides creditors will often check it.
What Is a Bad Credit Score?
A FICO credit score ranges from 300 to 850. The higher the number, the greater your creditworthiness.
Generally, a poor credit score is considered one that ranges from 300 to 579.
If your credit score falls in this range, consider why that might be. Have you struggled with paying bills on time? Or, perhaps you’ve owed a large amount of credit for some time. Factors such as these can cause your score to be low.
A bad credit score can impact your life in different ways. For one, it reduces the chances that you’ll be approved for future credit or loans. Creditors don’t want to work with someone who has a bad history of paying money back.
If you do apply for credit or loans, odds are you’ll be forced to accept less favorable terms. This can include higher annual fees or interest rates.
What Is a Good Credit Score?
On the other side of the spectrum are good credit scores.
A credit score of 670-739 is considered good, while anything higher than that is considered very good or excellent.
If your score is in the good to excellent range, you can enjoy better rates when working with lenders. You’ll have no trouble being approved for loans or credit, getting a mortgage, and won’t have to worry about being turned down for a job.
How Can I Improve My Credit?
If you do have a bad credit score, how can you improve it?
First and foremost, make sure you’re paying your bills on time. The most important factor in your FICO score is your payment history. Consider setting up automatic payments.
You should also try to bring down credit card debt. Your credit usage should be below 30%.
You can also try to apply for a short-term loan, which can help you pay off some debt. Make sure you read any of the fine print very carefully!
Some companies can also work with you to help you. If you’re looking to get your financial situation in order, see here.
What’s the Takeaway?
So what is a bad credit score? The bottom line is that it can negatively impact your life and finances.
If it’s low, make sure you’re taking steps to get it back up.
If you enjoyed this article, check out some of our other blog posts for more tips and guides!