If you have really bad credit or really good credit, you probably already know it. But there’s that vast middle area where your score is too low. It’s important to understand that there are many different credit scoring models out there and each may use a different scale – or numbers – to convey information. A bad credit score is a FICO score in the range of 300 to 620, now if you score is somewhere in between these numbers, odds are you will have trouble being approved for a home, car, loans etc. If by chance you are approved expect higher rates than those that have scores above 620.
- One of the many things that can affect your score is your payment history, it counts for 35% of your score, so missing your payment due dates seriously hurts your score. Being 31 days late is not as bad as being 120 days late, however, and being late is not as bad as failing to pay for so long that your creditor sends your account to collections, charges off your debt or agrees to settle your debt for less than you owe.
- Try to keep your credit utilization ratio low, ideally below 30%. You can calculate your credit utilization rate, sometimes called your balance-to-limit ratio, by adding the balances on all of your credit cards and revolving credit accounts, then dividing by your total credit limit. If you do hit above the 30% mark, you’ll be seeing your score fall several points depending on how far off you go.
- Total Debt is another – Having a high amount of debt (the sum of your credit card balances and loans) can negatively impact your credit score. Try to pay these down as much as possible.
- Hard inquiries appear on your credit report when you apply for new credit and can negatively impact your credit score. Keep these to a minimum and always double check to make sure inquiries were authorized by you. (Checking your own credit is a soft inquiry and does not impact your credit score.)
If you find yourself in the 300-620 range, the best thing to do is rebuild your credit…. Stay tuned!