What is Bad Credit?
Whether you’re looking to buy a new car or are interested in investing in a new home, you’ll more than likely need to apply for a loan. Unfortunately, if your credit is bad, it can be a little bit more difficult to secure an affordable loan. While there are many different borrowing options for those with bad credit, having good credit, truly is always in your best interest.
What really happens when you ruin your credit? Find out here.
But what exactly constitutes bad credit? This can be a frustrating topic for some people, which is why we’re breaking it down for you and answering all your most frequently asked questions about bad credit.
What is Bad Credit?
Bad credit is essentially when your credit score is on the lower end of the spectrum. Generally, this bad credit typically stems from a failure to keep up with debt payments by either paying them late or not paying them at all. A bad credit score, or in this case a low credit score can also stem from not having any credit history, meaning you have yet to start using credit products that are reported to the credit bureaus.
Bad credit can make it tough and more expensive to apply for new credit like a credit card or loan. Job loss, a bad economy, or even just overspending and misusing a credit card can also lead to bad credit.
Your credit report is consistently updated to keep tabs on how you have handled credit in your adult life. From this report, a credit score is devised, which is an easy-to-reference number about the overall health of your credit at any given time. Many lenders will utilize this number to decide whether you are a good candidate for credit or not.
To learn more about what credit reporting agencies can do for you, click here.
Do You Have Credit?
So what’s considered a bad credit score? Well, in the United States, credit scores range from 300 (which is the lowest credit score possible) to 850, which is the absolute highest. While each lender sets their own rules in terms of “bad credit” there are some general ranges that have become the standard.
A score from 300-629 is generally thought of as bad credit. From 630-689 is considered fair or average credit, with 690-719 being seen as good credit. And finally, any score that is 720 or higher is considered excellent credit. Anyone with good or excellent credit shouldn’t have too much trouble securing an affordable loan from most lenders.
Want to know how your credit score is calculated? Check out our infographic.
Credit bureaus use a lot of different information, data points, and factors to come up with your credit score such as how long you’ve had credit, how much of your available credit you use, and how punctual you are at paying off your credit.
How Long Does Bad Credit Stay on Your Credit Report
Now that you know a little more about what bad credit is and which credit scores constitute bad credit, let’s look at how long bad credit lasts. Negative marks, such as late payments or collections, generally stay on your credit report for about seven years. However, bankruptcy and any unpaid tax liens can stay on your report for about a decade. So while they are not permanent, they will affect your credit health for many years.
Want to know more about your bankruptcy score? Read this.
Frequently Asked Bad Credit Questions
In an effort to help you understand a little more about bad credit, here are the answers to some of the most frequently asked questions concerning bad credit.
Is 500 a Bad Credit Score?
While it can definitely get worse, yes, 500 would fall in the “bad credit” category by most people’s standards. You will still be able to secure credit, it will likely come with a higher credit score.
Is 550 a Bad Credit Score?
Yes, 550 is considered a bad credit score by most people.
Is 580 a Bad Credit Score?
While 580 is definitely better than 550, it still falls into the bad credit category by a small margin.
Can I Get a Loan With Bad Credit?
Yes, generally, getting a loan with bad credit is totally possible. While the interest rate might be higher and there might be some tighter terms that you need to abide by, there are many lenders that are willing to work with those that have less-than-ideal credit situations.
What is the Lowest Credit Score Possible?
As mentioned earlier briefly, a score of 300 is the lowest credit score that is possible. Unless you are completely avoiding paying all your bills, are constantly applying for credit and are spending way too much, getting the lowest possible credit score will be unlikely. If you find yourself with a score close to 300, you should speak to a financial advisor or counselor to get your finances back in order.
Is 640 a Bad Credit Score?
No, 640 is out of the range of that is typically considered to be bad credit. Most people would consider 640 to be a fair credit score and while it is decent, you should still look to improve your score to get the best rates possible.
Is 620 a Bad Credit Score?
While it is only 20 points lower than 640, yes, 620 is usually considered a bad credit score. The good news is, while 620 is not the best credit score, it’s also not the worst. With a little bit of effort, you can definitely work to improve your credit and have the credit score you want in no time.
Does canceling a credit card negatively affect your credit score? The answer is here.
How Long Does it Take to Repair Bad Credit?
As mentioned, it takes 7 years for negative marks to get removed from your credit report. So if you have any of these or delinquent accounts, it will take longer for your credit score to recover. However, in the meantime, you can improve your credit with a couple of key tricks, which we will look at in the next section.
How to Get Out of Bad Credit
Finding yourself with bad credit can put you in a difficult spot, but it is not one you can’t escape from. There are plenty of ways to get yourself out of bad credit. First of all, you need to ensure that you pay off all active debts that you have, and make all of your payments on time.
Next, you need to ensure that you are using credit responsibly, and should aim to use no more than 30% of your available credit every month. Using any more might show lenders or creditors that you are a risk of overspending.
Also, refraining from applying for new credit frequently can help your score stay higher, as applying for new credit can damage your score briefly, as the lenders and creditors check your report.
To discover more ways of repairing your credit, look here.
Need Help Growing Your Credit Score?
The most important piece of advice we want you to take away from this article is that bad credit isn’t forever. You have the ability to improve your credit score and take back control of your finances. If you’re interested in seeking help to improve your credit score, Rebound Finance can help. We offer a wide variety of credit building products and services to meet the needs of all American consumers.