Here’s what counts as bad credit

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Having bad credit rating It’s not the end of the world as long as you work to improve it.

Until bad credit can make it difficult to achieve financial results such as obtaining a permit for a car loan or mortgage, there are steps you can take to get your credit rating

Lenders keep a close eye on your credit report when determining if you are eligible for a loan, such as a credit card or a loan. One of the factors they take into account is your credit rating. This three-digit number is calculated by analyzing your financial activities, such as debt and payment history, to predict your ability to repay the money lent to you.

If your credit rating is below star, you should take action as soon as possible so that you can work towards good credit and increase your chances of getting approved for financial products like credit cards and loans.

Below, CNBC Select explains what credit rating range is considered bad, how to improve a bad credit rating, and how to get a free credit report.

Summary: poor credit ratings

  • What is a bad credit rating?
  • How a bad credit rating can hurt you
  • How to improve a bad credit rating
  • How to check your credit score for free

What is a bad credit rating?

Credit rating ranges vary depending on the credit rating model used (FICO vs. VantageScore) and the credit bureau (Experian, Equifax, and TransUnion) that is scoring. Below you can check which credit rating range you fall into using Experian scores. note that credit rating Lenders use it in a variety of ways, although 90% affects your FICO rating.

FICO score

  • Very bad: 300 to 579
  • Satisfactory: from 580 to 669
  • Good: 670 to 739
  • Very good: 740 to 799
  • Excellent: 800 to 850

VantageScore

  • Very bad: 300 to 499
  • Poor: 500 to 600
  • Satisfactory: 601 to 660
  • Good: 661 to 780
  • Excellent: 781 to 850

What Factors Affect Your Credit Rating

Credit ratings are calculated differently depending on the credit rating model. Here are the key factors that FICO and VantageScore take into account.

FICO score

  1. Payment history (35% of your rating): Did you pay past credit bills on time?
  2. Amounts Due (30%): The total amount of credit and loans you use compared to your total credit limit, also known as the utilization rate.
  3. Credit history length (15%): Loan term
  4. New loan (10%): How often do you apply and open new accounts
  5. Credit mix (10%): The variety of loan products you have, including credit cards, installment loans, financial company accounts, mortgage loans, etc.

VantageScore

  1. Extremely influential: payment history
  2. Very influential: Loan type and term and percentage of used credit limit
  3. Moderately influential: Total balances / debt
  4. Less influential: Available credit and recent credit behavior and inquiries

How a bad credit rating can hurt you

Loan refusals

A bad credit rating can lower your chances of getting credit cards and loans approved, making it difficult to achieve many of your goals. If you want to get out of debt from balance of transfer card, such as Discover it® Balance Transfer, you will need good or excellent credit. And if you want to make money awards or get the privilege of luxury travel, it will be nearly impossible to find a card that accepts bad credit.

Less favorable loan terms

If you are approved for a loan, you will most likely receive less favorable conditions, for example, high interest rates or annual fees compared to candidates with a good credit history. For example, one of the CNBC Select channels best credit cards for bad credit historythen OpenSky® Visa® Secured Credit Card, has an annual fee of $ 35; although there are no options for an annual fee.

Limited choice of credit cards

Bad credit limits that you can qualify for; the options you have will be in the first place secure cards… While a protected card such as Discover it® Secured Credit Card or Capital One® Secured Mastercard®can help you recover your credit, you need to post a collateral – usually $ 200 – to get an equivalent line of credit.

Please note that even if your credit rating is within a bad credit range, this does not guarantee that you will be approved for a credit card requiring a bad credit history. Card issuers look at not only your credit score, but income and monthly housing payments as well.

How to improve a bad credit rating

If you have a bad credit history, take the time to review your credit score and determine the cause. You may have missed payments or are late on your account balance. To achieve Fair, OK or excellent credit rating, to follow tips for creating a loan below.

  • Pay timely payments. Your payment history is the most important factor in your credit score, so you always need to pay on time. Consider setting up auto payments to ensure payments are made on time, or choose reminders via your card issuer or mobile calendar.
  • Pay in full. Although you should always do at least yours minimum paymentWe recommend that you pay your bill in full each month to lower your utilization rate, which is a percentage of the total credit limit you are using. To calculate the utilization rate, divide the total credit card balance by the total credit limit.
  • Don’t open too many accounts at the same time. Every time you apply for a loan, be it a credit card or a loan, whether you are approved or rejected, a prompt appears on your credit report. Inquiries temporarily downgrade your credit score by about five points, although they recover within a few months. Try to limit the number of apps as needed and shop with prequalification tools that won’t damage your credit history.

How to get a free credit score

Editorial note: The opinions, analyzes, reviews or recommendations expressed in this article are solely owned by the Select editors and have not been reviewed, endorsed or otherwise endorsed by any third party.

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