What is bad credit score?
Sometimes it’s hard to understand why credit score is so important? Credit score ranges from 300-800. Though it is subjective what defines a bad credit score, lenders typically label bad credit score in a general area. Individuals who have bad credit scores will end up pay thousands to tens of thousands more per year on a loan such as a mortgage or car loan. An exceptional low credit score will cause some lenders to not lend you money or lend at very high interest rates. Now do you see the importance of a good credit score?
Generally a low credit score means you are at risk of defaulting on the loan. The lower the credit the higher the risk and therefore the higher the interest rate will be. A default can be especially harmful mortgage companies who could potentially lose hundreds of thousands of dollars. Federal mortgage corporations such as Freddie Mac, Fannie Mae, and Ginny Mac consider scores of 620 and below to be bad credit scores. Credit scores below 620 and above 620 have considerable differences in the interest rates for a mortgage. Though mortgage companies are subjective in their range of bad credit, the scores typically range from 620 to 640.
In cases besides mortgages, bad credit scores can be less accommodating and a majority of lenders simply won’t work with you period. Many lenders consider bad credit debt to be such high risk that they will refuse to even offer higher interest rates. Now hold a second. What defines bad credit debt for lenders?
Any credit score above 620 is considered reasonable and in the good area. This will allow you to get a better interest rate and have more choices when dealing with lenders. More choices mean more negotiation and more savings for you. A score of 580 to 618 is considered ok but not great. Scores in this range are in danger of become bad but lenders will still be willing to work with you. However there is a higher risk that you will fall so interest rates will be higher and there is less room for negotiation.
A credit score from 500 to 579 is considered bad credit or very poor. At this area, the choices for lenders are very limited because few lenders will be willing to accept it. There is no room for negotiation. There will be considerably high interest rates as well as upfront fees and a strict payment schedule. Most lenders will enforce a very strict payment schedule to make sure you meet deadlines.
A credit score of 300 to 499 is considered very bad credit. A score this low shows that you have been unable to properly manage your debt, was late in payments, and/or had too many credit lines opened but failed to properly pay them back in time. Another reason that your credit score could be this low could be a filing of bankruptcy. You will be considered very lucky if you are able to even obtain a lender that is willing to accept you even at much higher interest rates. At this point there are a few steps to increase you credit score. Start from a smaller line of credit and start making payments on time. Using a number of small steps, you can slowly build your credit over the 499 mark and perhaps even higher.
For people who have limited resources and a rather bad credit debt, there are still options out there. The Federal Housing Administration is a government program that helps people with scores as low as 580 receive mortgages. This program is typically for individuals who have less to work with than others. It is very important for you to get your credit score above 620 if you wish to receive a far interest rate for your mortgage especially if it is a 10 year or 30 year mortgage.