What is bad credit score
- 1 MoneySuperMarket.com
- 2 What is Bad Credit Score? Amazing Tips to Improve it
- 3 6 Ways to Handle Applicants with Bad Credit
- 4 What Is a Good Credit Score #8211; Understanding Credit Score Ranges and Why They Are Important
When you apply to borrow money, the lender will assess your creditworthiness. It wants to know whether you can manage your debts, or whether you are likely to run into financial trouble. The higher your credit score, the better your chances of being approved for the most attractive credit card deals.
When a lender decides whether to approve your application for credit, it looks at your official credit file, which contains details of your financial history. It will tell bank or building society concerned whether you have a mortgage, how much you owe on credit cards and whether you have missed any payments.
The importance of your credit file
Your credit report helps the lender to decide whether or not to approve your application for credit, and on what terms. But each lender has its own specific rating system and will also consider your application form and any previous dealings it has had with you to come up with a credit score.
It sounds a bit sinister, but contrary to popular belief, you don’t have a single credit score and there is no credit blacklist. In other words, if you are turned down by one lender you could be accepted by another.
The information on your credit report is important because it can affect your ability to borrow money, perhaps if you need a credit card or want to take out a mortgage to buy a house. It will also impact the terms of any credit offer.
The information on your credit report is important because it can affect your ability to borrow money, perhaps if you need a credit card or want to take out a mortgage to buy a house.
Someone with a spotless record, for example, is likely to qualify for a 0% interest credit card deal. But if your record is blemished, you will either be turned down or charged a higher rate of interest.
It is essential that the details held on your file are accurate. You should therefore check your credit file once a year by requesting a copy from all three credit reference agencies - CallCredit, Equifax and Experian - as there are likely to be three slightly different versions of your credit report.
The Consumer Credit Act gives you the right to obtain your full statutory credit report at any time at a cost of £2 per report, so the total outlay should be no more than £6.
If you spot a mistake on your file, you should contact the relevant agency and ask for a correction, explaining why it is wrong and supplying any appropriate supporting evidence.
Note that information does not stay on your report forever. For example, a missed payment on your credit card will usually be wiped off after three years. Details of a County Court Judgment (CCJ) or bankruptcy should remain on your file for six years.
What affects your credit score?
Your credit score is calculated taking a number of factors into account, including:
• Late and minimum payments: If you are late with or miss a credit card payment or a loan repayment, it will show up on your credit file. You could also find that your record is tainted if you make only the minimum payments on your credit card every month as it suggests that you are struggling to manage your debts.
• CCJ, IVA or bankruptcy proceedings: You will almost certainly end up with a low credit score if you are declared bankrupt or enter into an Individual Voluntary Arrangement (IVA). Lenders are also wary of borrowers who have a County Court Judgment (CCJ) against their name.
• Little or no financial history: It’s not all about poor debt management. You will more than likely struggle to borrow money if you have never borrowed before as you will have little or no credit history. And no credit history makes it tricky for the lender to assess your creditworthiness.
• Access to available credit: People who borrow relatively small amounts or who prudently pay off their credit card bills in full each month are not profitable for lenders, so can be turned down for credit. Similarly, having access to large amounts of credit could worsen your score, as there is a possibility you might draw down a lot in a short space and struggle to service the debt.
• Frequency of credit applications: If you apply for multiple loans or credit cards or apply repeatedly in quick succession, lenders might assume you are in some kind of financial crisis. You should therefore limit your applications, particularly if you have recently been turned down.
It can be frustrating if you are refused credit, particularly as the lender does not legally have to give you a reason. However, you should always ask as they might give you a broad hint. Then check that the information on your credit file is accurate.
You should also make sure that your name is on the electoral roll, as it’s one of the first checks made by lenders.
The timing of your application could affect your score. So don’t be surprised if you are refused credit shortly after moving home or switching jobs. Lenders look for stability and could be put off by any recent changes.
How to improve your credit rating
With no such thing as a credit blacklist or one universal credit scoring system, there are various opportunities for you to improve your score. Here are our top tips:
1. Register on the electoral roll: The significant factor in boosting your score is getting on the electoral roll. If you’re not on it then it’s unlikely you’ll get any credit. It’s free and easy to register on the About My Vote website.
2. Demonstrate financial stability: It goes without saying that the best way to improve your credit rating is to manage your debts well. Don’t miss any monthly payments, stick to the payment deadline and stay within your credit limit.
3. Check your credit report annually: Review your report to check all the information held about you is credit, and correct any errors if you spot them.
4. Close down old accounts: You might owe nothing on the cards, but the lender will look at all your available credit before it makes a decision on your application.
5. Cut financial links with previous partners: if you have any joint financial products, such as a joint current account, they could influence the lender’s decision. You can ask all three credit reference agencies to add a ‘notice of disassociation’ to your file if you have cut financial ties with an ex.
6. Consider a credit builder card: You can then prove to a lender that you can manage your debts sensibly and so improve your score. Just remember that the interest rates on credit cards for people with low credit scores are usually high. So you should only consider this option if you are confident that you can keep your borrowing under control.
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What is Bad Credit Score? Amazing Tips to Improve it
As a borrower there are list of things that you should do to ensure your credit score is not bad. Creditors put a lot of weight on the credit score. There various methods used in calculating the credit score. The most common being FICO which can be used as your guide to know what is your credit score. Bad credit score has a lot many negative implications on your future especially when getting credit. What is bad credit score? Read on to know what we mean by bad credit score and what can be done to improve the bad credit score.
Having a bad credit score is when you have low scores in the credit scale. The credit score are measured in a three digits. A bad credit score is generally a score that is below 600. As a borrower having a bad credit score is brought about by a number of factors.
Missing of or delayed payment:
not paying payment is among the common causes of bad score.
Closing of your former credit accounts:
as a borrower you advised not to close down the credit account in order to have a long history. The closing down of accounts makes you to have a short history hence making your credit score to be low.
Frequent applying of credit:
when you apply for many credits within a short period of time it shows you cannot manage your finance responsibly. This leads to a bad credit score. The creditors will look at the credit report to ascertain this before they lend you money.
derogatory remarks are found in the following types of accounts: collections, bankruptcies, foreclosures and liens. As a borrower when you have derogatory remarks it shows you have problems when it comes to payment of the credit.
Having a bad credit score it affects your day to day life in the following ways;
There is a high interest rate on credit and loans:
bad credit score leads to increase in the interest rate unlike if you had a good credit score.
Loan application may be rejected:
due to the bad credit score the creditors may have doubts lending you money since they consider you unreliable.
It is hard to get housing:
the landlords check the credit score and if they see the credit score is low they may not rent their apartment to you since they consider you as a risk.
Hard to get utilities:
utility companies they do check the credit reports. If the credit scoring is low they you have to pay deposit which is supposed to act as security.
High insurance premiums:
insurance companies assume that the bad credit scores are due to high claims. Through the credit history they are able to tell and they will charge a higher premium to the borrowers with bad credit scores.
most of the employers while they are hiring employees they check the credit history. When employers get that you have a bad credit score they may not employ you since they assume that you are not responsible to handle your finances.
Ways to get back good credit score having bad credit score
If you have a bad credit score all hope is not lost. There ways you can do to improve on the credit scores and how to maintain the credit scores, here are some of them;
- Pay your bills on time and according to the amount that you had agreed with the creditor.
Check your credit reports to ensure there are no mistakes that have been made.
It might take long to improve the credit score but the results are worthwhile. Creditors use the credit score to know the health of your credit card. As a borrower avoid bad credit scores in your credit report to avoid some unnecessary expenses that come with bad credit score such as high interest rates. If you find you have a bad credit score work towards improving the score at all means.
6 Ways to Handle Applicants with Bad Credit
Written on December 17, 2015 by Laura Agadoni, updated on June 3, 2017
The advantage individual landlords have over big management companies is that we can be more flexible with our terms than they can.
We can and often do treat each tenant on an individual basis, not just by what some numbers on a credit report show.
Of course, a credit score that you can get through Cozy is a great indicator of whether a person is a good or a bad credit risk. A low score, usually 629 and below, often means this person doesn#8217;t pay their bills, or if they do, they don#8217;t pay them on time.
A low score could also mean a person carries too much debt, and if that happens with one of your tenants, good luck getting rent payments. So basing your decision on a person#8217;s credit score makes sense.
But it also makes sense to waive that rule in some cases.
A bad credit score automatically disqualifies tenants from renting a place from many of the large rental property companies. Buy how do you know what is #8220;bad#8221;?
The credit scale is between 300 and 850, and the general industry follows these guidelines:
But individual landlords are free to waive their credit score benchmark, and they often do if there are extenuating circumstances #8211; as long as they treat all applicants by the same standards. This flexibility gives individual landlords a way to compete with the huge companies that offer thousands of rental properties. So if you haven#8217;t considered this option, you might want to.
Here are six ways to minimize your risk if you rent to someone with a bad credit score:
1. Find Out the Reason for the Bad Score
A prospective tenant might tell you before you even run a credit check that they have a bad credit score. Or you might not find this out until after you run the credit check. Either way, instead of just dismissing this person, ask them the reason for the low credit score.
Maybe this person has a short sale or a foreclosure on their record, which substantially lowers a credit score. Or maybe they were running a business that went under and got into debt because of it. Maybe they were a victim of identity theft. Maybe their credit report contains an error they#8217;re unaware of. There are many reasons potentially good tenants might have a bad credit score.
If there#8217;s a good reason for the low credit score, look at this person#8217;s income. If they#8217;ve been on the job for a year or more with a decent income, you might want to consider this person. Note that people should ideally spend no more than 30 to 35 percent of their income on rent. Ask to see their pay stubs for the past year that prove their income. Also call the person#8217;s employer. Here#8217;s an example of what to say:
I#8217;m calling to verify the employment of a potential tenant. Is there someone I can speak with?
Then, when the right person comes on the line, ask the following questions:
- How long has X been employed with you?
- What position does he (or she) hold there?
- What is the likelihood of continued employment?
If everything checks out on the employment front, there are more things you can do.
If the potential tenant is renting a place now, ask to see proof of rent payments. You want to know whether this person has been paying rent every month, ideally for the past year, and whether they pay on time. Call the current landlord to find out whether this person has been a good tenant. If possible, call the prior landlord, too. Ask the following:
- Did they pay the rent on time?
- Did they leave the property in good condition?
- Why did they move?
If the potential tenant doesn#8217;t shine here, and maybe was even evicted before, you should probably not consider this person and keep looking. Paying the rent every month on time is your main concern. If a potential tenant can#8217;t prove that they#8217;ve ever done that, combined with the bad credit score, it typically makes them too much of a risk for you to consider.
But if they have a good income and proof that they pay rent on time, this tenant is starting to look pretty good, despite the bad credit score.
By checking a potential tenant#8217;s bank statements, you can determine whether they have enough cash in reserves to pay rent. Just looking at how much income they take in doesn#8217;t give you a complete picture. But knowing that they have money set aside is another way you can determine whether they can afford to pay the rent.
5. Charge a Tenant with Bad Credit More
People with bad credit pay a higher interest rate when they take out a loan or a credit card. The reason they pay more is that the odds of them defaulting are greater than that of people with good credit.
So if you normally charge first month#8217;s rent and security deposit to tenants that pass your credit check, you could charge tenants that don#8217;t pass your credit check two month#8217;s rent plus security. Or you could charge more per month for the rent or ask for a higher security deposit.
Charging high-risk tenants more is no different from what any other lender does. Plus, if this person has been repeatedly turned down for a rental unit because of their credit score, they will probably be grateful to finally get a place and will willingly pay a premium for it.
Note: If you choose to charge more for the security deposit or rent, make sure that you stay within any rent ceilings that might be in place for your jurisdiction.
Having a person with good credit co-sign the lease gives you another avenue to collect rent if your tenant doesn#8217;t pay. You would run a credit check on the co-signer just as you do for tenants. Check the co-signer#8217;s income and bank statements, and have the co-signer sign the lease as well.
Some landlords go strictly by the guidelines they set up, and some landlords are more flexible. If you haven#8217;t considered renting to people with a low credit score, you might want to.
Let us know if you#8217;ve done this and your experience in the comment section!
This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.
What Is a Good Credit Score #8211; Understanding Credit Score Ranges and Why They Are Important
Y ou have seen the commercials and heard the radio jingles, so by now you know that a good credit score is important. But what is a good credit score? Generally, anything above 700 is considered a good FICO credit score.
But that is not the end of the story. The reality is that a good credit score doesn#8217;t guarantee a loan or mean that you are in good financial shape. A good credit score just gives the lender another piece of information to help determine your credit worthiness. Your ability to get a loan depends on many factors, including your credit report, your credit history, amount of available credit, credit utilization, and other factors. Many lenders even use specific types of credit scores for certain loans. For example, the FICO 8 score is often used by mortgage companies to determine one#8217;s ability to qualify for a mortgage.
What is a Good Credit Score Range?
Your credit score is determined by a proprietary mathematical formula. There are many different versions of credit scores, but the most commonly referenced is the FICO credit score, which is considered the industry standard. Your credit score is based on a weighted formula which includes your payment history, amounts owed, age of credit history, recent loans, and the types of credit you have. The FICO credit scores range from 300 to 850 and a good credit score range is considered 700 #8211; 850. Here are more credit score ranges and their ratings.
- FICO credit score range: 300 #8211; 850
- Good credit score: above 700
- Average credit score: 680 #8211; 700 (depending on source)
- Poor credit score: Below 620
Why You Need a Good Credit Score
The FreeCreditReport.com commercials want you to believe you need a good credit score to drive a nice car and pick up chicks. Unfortunately, that#8217;s not quite true. A good or bad credit score doesn#8217;t guarantee a loan or necessarily prevent you from getting a loan. A good credit score will make it easier to be approved for a loan, allow you to have more available credit, and qualify you for lower interest rates when you are approved for a loan. And low interest rates can make a HUGE difference over the life of a loan.
How a good or bad credit score affects interest rates. Loans are available to almost anyone, even people with a poor credit score. But the terms and size of the loan will vary widely. The difference will come in the form of the required down payment or the interest rate you will have to pay. Let#8217;s look at some examples of how good and poor credit scores will affect your payment structure on a mortgage, then on an auto loan. There is a substantial difference in monthly payments between high and poor credit scores, and the payments over the life of the loan should be enough to convince you that a good credit score is valuable!
Effect of Credit Score on 30 Year Fixed Mortgage Rates
The score ranges and interest rates below come directly from the MyFICO website. There are three examples given for credit score ranges and interest rates, one is for auto loans and the other compares credit score and interest rate ranges for 15 and 30 year mortgages. The example below is from the 30 year fixed mortgage at $300,000:
Comparing good credit mortgage rates and bad credit mortgage rates. Using the numbers above, you will notice there isn#8217;t a big difference in the monthly payment from the top credit score to the second tier credit score range of 700-759 (remember anything over 700 is generally considered a good credit score range). Once you start dropping into the lower tier credit score ranges, you will see a large monthly difference in your payments. But thinking in terms of monthly payments can be an expensive way to think, especially when you consider that this is for a 30 year mortgage.
Even with the best credit score, making minimum payments on a 30 year mortgage means paying $256,564.15 in interest over the life of the loan. Paying 6.234% interest over the life of a 30 year mortgage equates to paying $363,851.12 in total interest. To put it another way, that monthly difference of $298 equals a difference of over $107,000 over the life of the loan.
How Your Credit Score Affects Auto Loans
Using the same concept as we used above, let#8217;s examine the how your credit score range affects your monthly auto payments. The MyFICO website references a 36 month fixed rate auto loan for $25,000.
Comparing good credit auto loan rates and bad credit auto loan rates. As you can see, the monthly difference between the good credit score range and a poor credit score range is $155, or over $5,500 for the life of the loan.
How Your Credit Score Can Impact Other Areas of Your Life
Some other companies or industries may also check your credit history or credit score. Here are some of the ways they may use your score:
- Employers: Whether it#8217;s right or wrong, employers believe that financial health is a good determinant of whether a potential employee will steal. Reviewing a credit history has become standard in background investigations, especially if they are security related, because someone in difficult financial shape may be tempted by bribes. While bankruptcy can#8217;t be a factor in a hiring decision, everything else in the history is fair game.
- Insurance companies: It#8217;s unclear why insurance companies use credit in their decisions but the fact they do is very clear. The lower your credit score, the higher your premiums will be. For whatever reason, their actuaries have determined that lower scores mean more claims.
- Landlords: Landlords have been checking credit scores and histories since the beginning of time because they#8217;re essentially #8220;lending#8221; you the value of rent each month. If you#8217;re unable to regularly meet other obligations, you might not be able to make rent and that#8217;s a problem. This same logic applies to service contracts, like cable or cell phone service.
Have a poor credit score? Credit scores under 620 are often considered sub-prime loans, and come with more risk to the lender. Borrowers with credit scores in this range often pay substantially higher interest rates. If you fall below the sub-prime loan cutoff limit, it may be best to try and improve your credit score before applying for a loan. You may find it easier to obtain a loan and the terms will likely be better.
Remember, not all is lost. As we mentioned above, you can almost always find someone to give you a loan if you need one. You will see a difference in the terms of the loan, though. You may be required to pay a larger down payment or higher interest rates to get the loan you are seeking.
Your Credit Score is Important
Like it or not, your credit score plays an important role in your ability to obtain a loan, the amount of available credit you can carry, and the interest rates you will pay. If you are considering applying for a loan in the near future it is probably a good idea to know your credit score and try to improve it before applying for the loan.