Maybe you already know your credit score is lackluster, or maybe you’re dragging your feet to find out because you don’t want to know just how bad it is. Before worrying anymore about that dreaded three-digit number, find out just what is a bad credit score and what your financial options are if you have one. Bonus? We’ll even give you a few tips on how to fix your credit score.

bad credit score

What are the different types of credit scoring models?

Before you can figure out what exactly is a bad credit score, you need to understand the range of possible scores. And that depends on which credit scoring model you use. The most popular model is the FICO score, which was created by the Fair Isaac Corporation and is used by the majority of lenders in the U.S.

FICO scores range from a low of 300 to a high of 850. The most influential factors are your payment history and the amount of debt you owe. Together, these two categories comprise 65% of your FICO credit score. The remaining 35% is spread out amongst the length of your credit history, your credit mix, and new credit/inquiries.

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An increasingly popular scoring model is called VantageScore. The older scores ranged between 501 and 990, but the latest version, the VantageScore 3.0, scores between 300 and 850 just like FICO. This makes it easier for consumers and lenders alike to have the same base level understanding of a credit score regardless of which model is used.

For VantageScore, the most influential information is your payment history. The next most important factors are the age and types of credit you have, combined with how much of your credit limit is in use. The model then takes into account your total balances and debt, followed by recent credit inquiries and your available credit.

Why does your credit score matter?

Your credit score isn’t just some arbitrary number that sits in a file somewhere. It’s constantly changing based on how you handle your finances. When you pay your bills on time and don’t carry a lot of debt, your credit score should look pretty good the next time it’s pulled. On the other hand, if one of your accounts has gone to collections, you can expect to see your credit score plummet.

All of this matters because lenders and other creditors use your credit score to determine how likely you are to repay a potential loan. When your credit score is good, a lender determines that you are creditworthy, approves your loan application, and offers you a favorable interest rate and term.

If however, you have a bad credit score, you’ll be offered high rates over longer periods of time, resulting in higher monthly payments and more money spent on interest. Alternatively, you might not even be approved for a loan at all!

But credit scores don’t just matter the next time you need a loan or a credit card. Many other situations in life require a decent credit score. Landlords, for instance, might request your score as part of the application process to check if you’re likely to pay your rent on time.

Even employers can pull your credit report if you’re applying for a job that requires you to handle money. When you have bad credit, so many different areas of your life can be negatively impacted, so it’s best to avoid getting yourself into that situation in the first place. If you’re already there, now might be the right time to fix it.

So what is a bad credit score?

Most financial experts define a bad credit score as anything below a 600, but each lender has its own standards when reviewing applications. The average American has a credit score of 687, which helps put the range into perspective.

If you have a bad credit score, you’ve probably had a combination of negative items on your credit report, like missed payments, delinquencies, or maybe even a bankruptcy or foreclosure.

You can always request a free credit report to figure out what exactly is keeping your score so low. In fact, we recommend checking your credit report every year.

Federal law allows you access to a free copy of each of your three reports every 12 months, so there’s no reason not to take advantage of this benefit. Just visit AnnualCreditReport.com to request your copies from Equifax, Experian, and TransUnion.

Where can I find out my credit score?

When you request a copy of your credit report, you’ll see your financial history listed out over several pages (or more or less, depending on how much history you actually have). However, you won’t get your actual credit score when you order your report.

Lenders look at both pieces of information to determine your loan offer, so it’s important to know where you stand in terms of both your credit report and credit score. So how can you get your credit score?

Lots of websites offer free scores, although they are known as educational credit scores, or even “FAKOs,” because they’re not your actual FICO score. When it comes time to apply for a loan, you might be surprised to see a wide discrepancy between your free educational score and your FICO score.

To find out your real FICO, you can purchase it from the company’s website. You can also sign up for a credit monitoring service if you expect to work on your credit score over time and want to view your progress on a regular basis. Just be sure to select a company that does indeed use the real FICO.

You can also check to see if you’re eligible to receive free credit score updates from one of your existing credit cards. Many companies now give this service away as a cardholder benefit. Check out this comprehensive listing of credit cards offering free credit scores and see if yours makes the list.

What credit score do I need for a personal loan?

A lot of different factors go into determining your eligibility for a personal loan. The type of lender you choose also affects whether or not you’ll be approved. Obviously, the better score you have, the better your rate will be. But it’s important to know that some lenders specialize in offering loans for people with bad credit.

You’ll probably qualify for a smaller loan amount, but it can still be helpful if you need to finance a large purchase that you can’t handle with your normal cash flow. You might also need to provide collateral for a personal loan, since an unsecured loan represents more risk to the lender. Be sure to shop around for the best loan possible before making a final decision.

Can I get a mortgage with bad credit?

Most mortgage lenders have strict guidelines they must adhere to. If you don’t meet their eligibility requirements, there’s not much you can do to get a home loan until you improve your credit score. But you do have a few mortgage options, even if you have bad credit.

A conventional loan typically requires a minimum credit score of 620. An FHA loan, however, allows borrowers to have as low as a 580 with just a minimum 3.5% down payment.

Technically, you could still qualify for an FHA loan with less than a 580, but you’d need to put down at least 10% of the home’s sales price.

Of course, you’ll also need to demonstrate other financial capabilities other than your credit score when applying for a mortgage. For example, your monthly debt payments should be no more than 43% of your gross monthly income — this formula is known as your debt to income ratio. Lenders also look at your employment and assets.

How can I fix my credit score?

Credit naturally repairs itself over time, with no single negative item lasting more than seven or 10 years. But there are several ways you can help expedite the process while waiting for those items to drop off on their own. Start by making sure everything listed on your credit report is indeed accurate. If there’s an incorrect item, it’s fairly easy to dispute it with the credit bureau.

Another easy idea is to work on paying off your debt to decrease your credit utilization. This helps both your credit score and your overall loan or credit application.

When you have a lot of negative items on your credit report, it may be worthwhile to enlist the help of a professional credit repair company. With bad credit, there are only so many quick fixes you can implement before hitting a wall with your progress. But a credit repair company can help you fully exercise your rights when it comes to removing negative items and fixing your bad credit.

Bad credit doesn’t have to make you feel like you’re backed into a corner. You may still have credit options available to you now, and there are also concrete steps you can take to get back on a better financial path.