Credit, essentially means the trust levels that possible lenders possess that you will be repaying the money you borrowed from them. Generally, everyone has a gut feeling about their credit score, and one’s credit could fall anywhere on a scale ranging from having outstanding credit (where credit companies and banks will practically beg one to borrow their money) to very bad credit (meaning banks and credit institutions will keep one at arm’s length, let alone lend them any money).
While most of the people’s credit score sits somewhere between these two ends of the spectrum, there are still assumptions made in the world of lending about what score exactly qualifies as ‘bad’. For example, a majority of the credit scoring models feature a range of 300–850, wherein if the score is anything lower than 600, essentially, it’s a bad credit score. Typically, the tiers are such:
- Bad Credit: below 600
- Poor Credit: 600-649
- Fair Credit: 650-699
- Good Credit: 700-749
- Excellent Credit: 750+
Defining “Bad” Credit Bad credit essentially is a description of a record of an individual’s all and any past failures in keeping up with payments on their credit agreements, resulting in their inability for getting approved for any new credit. It characteristically means that one hasn’t paid their credit and other obligations in time, or one hasn’t paid it at all. One’s credit report also takes into account any public records such as any legal judgments against the person, bankruptcies, or any Federal or state tax liens.
Companies known as credit reporting agencies or credit collect an individuals’ credit history and compile it into something known as a credit report. Since every agency maintains its own distinct report, one’s credit scores and history could differ with each report due to omitted information or errors.
Cons of a poor credit score There are many disadvantages to having a poor credit score. They are listed below:
- Lenders are less likely to lend individuals money due to the increased probability that one could fall behind on any loan or new credit card accounts.
- One might find all their applications for credit denied. If one does get approved, then they’ll be slapped with a much higher interest rate as compared to those with good credit scores borrowing money. Increased interest rates are the lender’s way of compensating himself for the risk he’s taking of loaning the person money.
- In addition to the above, there are certain insurance companies which consider one’s credit score when quoting them an insurance rate. Landlords could require higher security deposits, and even cell phone and utility providers end up charging a security deposit for applicants with poor credit.
Things you can do to improve credit score Some steps to improve one’s credit score over time include:
- Firstly, one needs to focus on removing all the negative information from their credit report either by using a credible credit repair technique or a credit report dispute.
- Secondly, sometimes the consequences of some negative marks on the credit report lessen over time, so all one can do is wait.
- One needs to focus on adding positive information to their credit report by adding new accounts and making constant and timely payments.