Bad Credit

Bad Credit
“Bad credit” means a borrower has a low credit score. Any score between 300 and 630 is generally considered bad. Late payments, bankruptcy, and maxing out a credit card can all contribute to a lower credit score, and bad credit.

What is Bad Credit?

Bad credit is simply a description of a borrower’s credit score. There is no hard-and-fast point at which bad credit occurs, but generally, credit is considered bad if a borrower’s score falls between 300 and 630. The most common type of credit score is called a FICO score, after the Fair Isaac Corporation. FICO scores range from 300 to 850, and the lower the score, the worse a borrower’s credit1.

FICO Score Range

FICO RangeQuality
720-850Great Credit
680-719Good Credit
630-679Fair Credit
550-629Subprime Credit
300-549Poor Credit

How did I get Bad Credit?

A low credit score—and bad credit—are determined by a mix of factors: payment history, outstanding debt, credit history length, and types of credit used, for instance. Financial troubles like delinquency, default, bankruptcy, and a history of maxing out credit cards can all contribute to a lower credit score.2 Credit bureaus compile this information and use it to create a borrower’s credit report, which is the basis for calculating credit score and whether the borrower has bad credit.

Who fixes Bad Credit?

Ultimately, the only person who can fix bad credit is the borrower who has it, and the process isn’t quick. The best way to do it is for borrowers to improve their financial habits: make payments on time, reduce outstanding debt, stop borrowing until debt is paid off. MyFICO.com has a great list of tips and advice on how borrowers can improve their credit score.3 Borrowers should remember to be patient, as repairing credit takes time.

Another option is to contact a credit counseling service. They help borrowers improve their credit by offering financial education and sometimes negotiating with creditors. But not all are reputable, and companies that promise to quickly repair a borrower’s credit are most likely scams. Working with a credit counseling service will not lower a borrower’s FICO score, but certain actions that the service might suggest—like settling debts for less than what the borrower owes—could have a negative impact, even if they’re the best course of action for the borrower to take.

When does Bad Credit expire?

The negative information that causes bad credit stays on a borrower’s credit report for seven years. It will eventually be erased, but if borrowers continue to miss payments and default, the new information will need another seven years to clear.

Ultimately, bad credit does not go away until borrowers improve their financial habits. Things like making payments on time and paying off delinquent debts will improve their credit score and contribute to good credit.

How does Bad Credit affect me?

Lenders look at credit scores when reviewing credit applications, and a borrower with bad credit is considered less likely to repay a loan. This means that borrowers with bad credit will have difficulty getting approved for loans or credit cards, and if they do, they’ll almost certainly have to pay higher interest rates.

Bad credit can have an impact on other areas of a borrower’s life as well. Types of insurance like auto insurance and homeowner’s insurance are typically more expensive for people with bad credit. Landlords also usually check the credit history of potential renters and are less likely to offer a home to those with bad credit. And cell phone carriers typically check a customer’s credit history, too, and are less likely to offer a contract to those with bad credit history.4

How do I know if I have Bad Credit?

The best way to check credit is to order a credit report. There are three nationwide companies that compile the credit history of borrowers: Equifax, Experian, and TransUnion. Each of these companies is required by law to provide a free credit report once every 12 months if a borrower requests it. AnnualCreditReport.com allows borrowers to order a credit report from each of the three companies individually, or all three at the same time.5

Who accepts Bad Credit?

Borrowers with bad credit will have a much harder time getting approved for credit, as banks and credit unions will likely turn down loan applications. With limited options, borrowers may be more willing to accept exorbitant interest rates and inflexible terms. Lenders who try to take advantage of borrowers with bad credit are considered “predatory lenders.“

Predatory lenders—like payday loan and car title loan providers—operate online and in storefronts. These lenders offer “no credit check loans” because they don’t care—or even don’t want— the borrower to be able to repay the loan. They’d rather use rollover to walk the borrower into a cycle of debt. Borrowers are always advised to avoid predatory lenders.

Are Bad Credit loans safe?

Borrowers with bad credit should be very careful when applying for loans. Payday loans and title loans are notorious for trapping borrowers in a cycle. For borrowers with bad credit who need a loan now, a personal installment loan is likely to offer better rates and terms. Unlike payday and title loans that require a single lump-sum payment, installment loans allow borrowers to spread their payments over a period of time. OppLoans offers personal installment loans without a traditional credit check that can hurt a borrower’s credit score. Loan decisions are made quickly, and the money is delivered into a borrower’s bank account as soon as the next business day.

References:

  1. Detweiler, Gerri. (2015, January 29). What is a Bad Credit Score? Retrieved from https://www.credit.com/credit-scores/what-is-a-bad-credit-score/
  2. Langager, Chad. How is my credit score calculated? Retrieved from http://www.investopedia.com/ask/answers/05/creditscorecalculation.asp
  3. How to repair my credit and improve my FICO scores. Retrieved from https://www.myfico.com/crediteducation/improveyourscore.aspx
  4. Martucci, Brian. 7 ways a bad credit score can negatively affect you – how to track your credit score. Retrieved from http://www.moneycrashers.com/bad-credit-score-negative-effects/
  5. FTC. Free credit reports. Retrieved from https://www.consumer.ftc.gov/articles/0155-free-credit-reports