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What Is Considered a Bad Credit Score? The Complete Guide

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what is considered a bad credit score

About 53% of Americans have been turned down for a loan or a credit card because of a bad credit score. If you want to buy a home, get an apartment, or buy a car, your credit score will be pulled.

Your credit score affects your ability to get ahead financially, yet millions of Americans have poor credit scores. The more you can learn about your credit score, the easier it will be to bring that score up. That will bring more opportunities and help you dramatically improve your finances.

What is considered a bad credit score? Read on to find out and how you can get a higher credit score.

What Is Considered a Bad Credit Score?

Let’s take a look at how credit scoring works. There are credit reporting agencies in the U.S. These are Experian, TransUnion, and Equifax. When you have a loan, credit card, or bankruptcy, these things all get reported to the credit reporting agencies.

There are also credit scoring agencies. These companies take the information on your credit report and create a score to make it easy for lenders to determine your credit history.

The two main credit scoring agencies are FICO and VantageScore. They have slightly different scoring methods, so a bad credit score will be different according to which scoring agency you use. Most lenders still use FICO, but you should know the scoring methods of both.

Let’s take a look at FICO’s credit scoring scale.

  • 850 – 800: Excellent
  • 799 – 740: Very Good
  • 739 – 670: Good
  • 669 – 580: Fair
  • 579 – 300: Bad

As you can see here, anything below a 580 is a bad credit score. Lenders have different criteria for judging credit scores. You could have a 700 score, but still get turned down for a credit card or loan.

Many lenders consider 650 to be the cutoff point between a good and a bad credit score, even though FICO’s scale shows that 650 is a good credit score.

The scale is slightly different for VantageScore, but you can expect a similar story. Here’s the VantageScore credit scoring scale.

  • 850 – 781: Excellent
  • 780 – 661: Good
  • 660 – 601: Fair
  • 600 – 500: Poor
  • 499 – 300: Very Poor

What you have to realize is that your credit score isn’t there for your benefit. It exists for companies to see if you’ll be a profitable customer or not. They want to know if you’ll pay your bills, pay them on time, and pay interest because that’s how they make money.

What Makes Up Your Credit Score

There are several components of your credit score. VantageScore and FICO take the same information from your credit score to create the three magic numbers. Where they differ is in how they weigh the information to calculate your score.

The big factors that make up your credit score are your credit utilization rate and payment history. Other things like recent credit checks or credit applications, length of credit history, and types of credit used have a smaller impact on your score, too.

Your credit utilization rate is the amount of credit you use against what you have available. In other words, if you’re closer to maxing out your credit, the higher the utilization rate and the lower your credit score.

The payment history is pretty simple. You have to pay your bills on time. One late payment will lower your score and stay on your credit report for years.

How to Improve Your Credit Score

Once you understand how credit works, it should become a little clearer as to how you can improve your credit score. There are certain steps that you can take to bring that number up.

You can have a great credit score but have a lot of debt that is hard to pay off. If that’s the case, you need to get a handle on it as soon as you can. Here are ways that you can pay down your debt and improve your credit score at the same time.

Check Your Credit Report

About 20% of Americans have at least one error on their credit report from one of the credit reporting agencies. You need to take a look at your credit reports to make sure that you don’t have any mistakes that can bring down your score.

You can pull your credit report from each of the credit reporting agencies once a year for free. Just go to AnnualCreditReport.com.

Something like a credit card taken out in your name could also be a sign of fraud that impacts your credit. You want to make sure that you check your credit regularly. There are many free services that allow you to track your credit.

Use a Credit Restoration Service

If your credit score is under 650, or if you have mistakes on your credit report, you should consider credit restoration services. These are services where you work with an agency that guides you through the process of raising your score.

They will help you remove mistakes from your report. They may also be able to remove late payments from your report as well.

This isn’t a magic bullet approach that will raise your score. It takes time and patience to do.

Get a Secured Credit Card

A secured credit card is a card that asks for a deposit before you take out the card. It’s used just like a regular credit card and you have to make your payments on time.

If you use the secured credit card, you can improve your score by raising your credit utilization rate and improving your payment history.

Have Bad Credit? Take Steps to Improve Your Credit Score Now

What is considered a bad credit score? Typically, anything below 650 is considered to be a bad credit score by lenders, no matter what scoring agency you use. A FICO score below 580 is bad, while VantageScore views anything under 600 as poor.

You can take measures to improve your credit score now. You can remove any errors from your credit report, work with a credit restoration agency, and pay down your debts on time. Each of these things will steadily bring up your score over time.

Are you looking to build your credit to get a mortgage? Head over to this article that outlines the difference between getting prequalified and preapproved for a mortgage.

 

 

Trevor Anderson wrote this article on behalf of FreeUp. FreeUp is the fastest-growing freelance marketplace in the US. FreeUp only accepts the top 1% of freelance applicants. Click here to get access to the top freelancers in the world.  

San Antonio and Hearst partners may earn revenue when readers click affiliate links in this article.

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Bad Credit

Beware of Spot Deliveries! | Auto Credit Express

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A spot delivery is often considered a scam technique that some dealers use to get you to take delivery of a car immediately after you agree to a deal. However, just because you agreed to a deal verbally and put some cash down doesn’t mean that things can’t change or that the vehicle is yours to keep.

Spotting Spot Delivery Scams

Beware of Spot Deliveries!Spot deliveries, also called yo-yo financing, simply means that you drive off with the car before the financing process is done. This is problematic because you can sometimes drive home with a vehicle, only to get a call later that your auto loan application was rejected.

Once you get that call that your financing didn’t go through, one of two things tend to happen next:

  1. You have to draw up a new contract with the lender, typically with different terms than you originally agreed to.
  2. If you don’t want the new terms or can’t afford the payments, you’re forced to return the car.

This can be an emotional rollercoaster, and it’s extremely inconvenient. You get to drive off with your next vehicle, elated that you were tentatively approved, only to find out that you must return to the dealership to start the process over again.

Often, bad credit borrowers can be victims of a spot delivery scam. Once they hear they can take the car home, it feels like a done deal and that everything is sorted. When you’re struggling to get an auto loan approval, some borrowers take what they can get if they need a vehicle quickly.

This is the yo-yo part – going back and forth between an approval and a denial, and from home back to the dealer until something can be finalized.

Avoiding a spot delivery scam is simple: just don’t drive off with the car until all of the necessary paperwork is completed and finalized. This means verifying that you’ve signed the title, the financing documents, and the sales contract. Don’t put any money down on a vehicle until your financing is approved, and don’t drive away from the dealership with any documents left unsigned.

Additionally, bad credit borrowers can explore other financing options if they’re struggling to get an auto loan approval.

Trouble Getting an Auto Loan?

If you’ve had issues finding a lender that can work with your credit, consider special financing. Special financing dealers are signed up with subprime auto lenders that are equipped to handle all sorts of unique credit situations like a past repo, bankruptcy, or poor credit. Instead of basing their loan decision on credit score alone, they examine the many parts of your financial health to determine your ability to take on a car loan.

After you submit your items to a special finance dealership, they’re sent off to one or more subprime lenders that see if you’re ready for an auto loan. Based on your income and overall stability, subprime lenders tailor a car loan (if you qualify) to your situation.

This means approving you for a monthly payment that fits your budget, also called a payment call. Subprime lenders see if you qualify before you pick a vehicle – not afterward. The financing process is done before you take a car home, unlike a spot delivery.

Subprime lenders also report their auto loans to the credit reporting agencies, giving you the chance for credit repair. With an improved credit score, you can have more options for new credit, and hopefully qualify for a better interest rate and possibly a higher loan amount on future car deals. Getting out of bad credit should be a priority, since it can determine so much of your vehicle buying power.

Finding the Right Car Loan

Instead of hoping to run into a dealer that has bad credit lending resources, start with us at Auto Credit Express. We know where special financing dealerships are, and we match bad credit borrowers to them daily.

To get connected to a dealer in your area, fill out our auto loan request form. It’s completely free, secure, and carries no obligation. Get started now!

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Bad credit rating: How you get it, how it affects you and how to clear it

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Finance expert Lacey Filipich explains what you need to know if you have a bad credit score – including how you get one, how it affects future loans, and how to clear it.

As our options for accessing debt have expanded (I’m looking at you Buy Now Pay Later,) Australian consumers have gotten savvier about credit ratings affecting their finances.

Some of you may even have had your credit rating pronounced ‘bad’.

If you haven’t thought about your rating before, this might feel like getting a big fat ‘F’ on your school report card for a subject you didn’t even know you were taking.

If this bad credit rating is affecting whether you can get something you need – for example, a mortgage – what can you do to fix it?

First, let’s start with where that rating comes from.

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How your credit rating works

The credit rating system is a regulated shortcut. Lenders can see at a glance via your score whether you’re a good bet financially. It’s not the only thing they look at, but it’s part of the mix in assessing you as a customer.

Keep in mind that a lender is anyone who might send you a bill. Even a gas bill paid at the end of the usage period is like credit, right? They’re advancing you a service or product. Whether you pay them, on time and in full, is a reflection on how you treat debt.

Over time, your behaviour with debt generates your aggregated score.

Your rating depends on:

  • What kinds of debt you’ve used before.
  • Whether you’ve paid back those debts on time.
  • Whether you defaulted on any bills or repayments, meaning you haven’t paid by the agreed date and/or to the agreed amount (time and dollar value limits apply).
  • Applications you’ve made for credit elsewhere.
  • Whether you’ve been bankrupt, or had to negotiate an agreement to change how you repay a debt through legal channels.
  • How many requests there have been for your credit report from other credit providers.

Actions perceived as positive, such as paying your debts in full and on time, improve your credit rating.

Actions perceived as negative, such as missing payments or defaulting or a lot of credit checks, reduce your credit rating.

And it doesn’t matter what you bought with the debt. Credit ratings don’t reflect the value of the asset that debt paid for.

RELATED: 7 essential money hacks for first time parents

bad credit rating

What is a ‘bad’ rating, and how do you get one?

There are three main credit reporting agencies in Australia: Equifax, Experian and Illion.

Just to make things difficult, they use different scales (0 to 1000 or 1200) and different cut-offs to define ‘good’ and ‘bad’. Thanks *so* much, guys.

With Equifax, ‘bad’ is 505 or below. For Experian, it’s 549 or below. And with Illion, it’s 299 or below.

Because credit ratings are based on rolling information – generally five to seven years’ worth of your monthly behaviours with debt – they can change a lot.

If you repeatedly pay bills late, or you default on debts you’ve agreed to, or you apply for lots of different forms of credit, your rating drops.

You might also have an adverse impact from something that you’d consider unfair or wrong appearing on your credit report.

RELATED: Home loans: Is fixed or variable the best option?

Can you fix your credit rating if it’s bad?

If your application for a loan has been knocked back due to a bad credit rating, it’s a good idea to check your report via one of those three agencies.

Mistakes can happen. Incorrect names or erroneous account details might mean you’ve been attributed to actions that belong to someone else.

Intentional fraud can also happen. If someone steals your identity and starts racking up debt against your name, you want to get that sorted quickly.

There may also be notes on your file that you consider unfair. Perhaps the lender didn’t notify you properly, or listed a default while you were disputing the charge (which they shouldn’t).

To fix errors or unfair items, you can request amendments. You’ll get a positive impact on your credit rating quickly this way.

Sometimes, a poor credit rating is just like the impact of poor diet or no exercise. It’s real, and it’s down to your behaviour.

And just like diet and exercise, quick fixes aren’t usually effective. It’s about consistent, positive debt behaviours. Over time, these little steps add up to an improved credit rating.

Firstly, Pay. Your. Debts. On. Time. All your debts – utility bills, credit cards, mortgages etc.

If you can’t make your payments, speak to your lender proactively so you can agree a mutually satisfactory arrangement. That means you don’t get a strike against you with the credit agencies. Consider talking to a financial counsellor if you’re using debt to cover basics, as that’s is not a good place to be.

Secondly, use debt judiciously. Don’t apply for any and every credit card. Keep your credit card limits to a reasonable minimum.

Finally, channel the old Pantene mantra: it won’t happen overnight, but a good credit rating will happen (if your behaviours are positive).

Be patient and sensible, and you’ll get there.

Lacey is the founder of Money School and Maker Kids Club, where she shares lots of ideas and tips on the whole family being smarter with their earnings. 

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What Does an Extended Car Warranty Cover?

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If you purchased a brand-new car, then you’re covered under the manufacturer’s warranty until a certain mileage point or age limit. What happens after you’ve met these limits? For those who want extra coverage on their vehicles, extended warranties can be an option for used cars.

Understanding Extended Warranties

What Does an Extended Car Warranty Actually Cover?If something happens to your vehicle that your insurance company doesn’t cover and the car’s manufacturer warranty is expired, you’re left to foot the cost of repairs. For this reason, many borrowers consider buying an extended warranty for their used vehicles.

An extended warranty, also called a vehicle service contract, is essentially additional coverage on your car, and the name is somewhat inaccurate. Extended warranties don’t “extend” the original warranty offered by the manufacturer. They’re actually third-party service contracts that cover certain vehicle repairs for a set amount of time and/or mileage.

For those who rely on their cars heavily day-to-day, service contracts can offer some peace of mind when you’re driving a used vehicle. Extended warranty coverage varies greatly, and no two offered by dealerships are likely to be the same.

To see what an extended warranty truly covers, ask for a list of the inclusions and exclusions from the finance and insurance (F&I) manager at the dealer where you’re purchasing your used car.

What Vehicle Service Contracts May Cover

Many service contracts can mimic the manufacturer’s original warranty. Some cover the transmission and engine, and associated parts of these two key systems like seals and gaskets. Some extended warranties can cover most parts of your vehicle, including the key components (like the engine and transmission) and things like air conditioning and maybe even the power seats.

As a good rule of thumb, these things typically aren’t covered under extended warranties:

  • Regular maintenance
  • Brakes, clutches, windshield wipers, and lights
  • Regular wear and tear (like interior damage)
  • Body damage (dents)
  • Modifications
  • Tires

Keep in mind that most extended warranty claims come with deductibles, and there tend to be rules and exclusions that don’t come with a manufacturer’s warranty. Often, the dealership where you purchased the car and service contract requires that you go to their service center to repair your vehicle under the warranty.

On top of that, some extended warranties require that you pay for the repairs up front and then file a claim to be reimbursed for the cost later. Be sure to read all the fine print of a service contract, and feel free to ask lots of questions. You’re the one spending the money on it, after all!

When to Buy an Extended Warranty

Manufacturer warranties can last for a number or years, or up to a certain mileage. New cars often come with bumper-to-bumper coverage for around three years or 36,000 miles, as well as a powertrain warranty that’s normally good for around 10 years or 100,00 miles.

If you’re purchasing a used vehicle, check to see if it’s still covered under its manufacturer warranty before you consider buying an extended warranty.

In most cases, if the car you’re purchasing is outside of the original new vehicle warranty, the F&I manager offers you a service contract when you’re wrapping up your contract. F&I managers typically have a whole menu of options that you can consider adding to your auto loan.

Before you decide on an extended warranty, or any of the dealer add-ons available, make sure to ask questions about the contracts offered and the details about what they cover. If you decide to take one, the costs are usually then rolled right into your car loan payment.

Ready to Start Car Shopping?

When you’re buying a used vehicle, there’s a higher risk of something going wrong with it down the line. This is always a possibility with any car you’re fixing to buy, but with a used one, it can be hard to tell what the vehicle has truly been through. It’s even harder to predict what could happen in the future.

Extended warranties and cars can be long-term commitments, and it can feel like a hassle to find the right dealership for your situation. When you have less than perfect credit, finding the dealer that’s signed up the right lenders can be even more difficult, but it doesn’t have to be!

Here at Auto Credit Express, we’ve cultivated a network of dealerships that work with bad credit borrowers. Instead of driving all over town and hoping to find a dealer for your credit, fill out our free auto loan request form, and we’ll do the looking for you. We’ll search for a dealership in your local area that has the lending resources you need.

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