Credit report means an individual's history of borrowing making payments. It also includes all your financial information, late payments which you may have made and things related to bankruptcy, in case you have applied for it. Whenever you apply for a credit card or loan, your personal information is forwarded to the credit bureaus, who in turn try and match your name, address, besides other information. Once the credit bureaus match your credit information, they send a credit report to the financial institutions, and this information is used by lenders to determine your credit worthiness. Timely payments indicate that you are willing to repay your debts on time, and the payments which you have made over time indicates that. Let's take a look at what is called a bad credit score and steps you can take to improve it.
What is Considered a Bad Credit Score
There are several people who don't know what a bad credit score is and the steps to be taken to improve credit ratings. Credit scoring systems vary, but the most common one is the FICO score. This system is used by all the three credit bureaus and can be considered a standard system. The score ranges from 300 to 850, with 300 considered the worst and 850 considered the highest credit score and the best.
The criteria for determining a bad credit score number depends on the type of loan you are applying. In case you are applying for a home loan, a score of less than 620 is considered bad. However, if your score is just below 720 but more than 675, you are not considered to have a bad credit score, but still you may need to may some percentage more in interest. If your score is between 620 and 674, it's still not considered a bad score, but you need to pay a considerable higher rate of interest. You may like to know the average credit score, so that you know the score where you can get a good deal.
A score of less than 620 is considered bad. It's not that you won't get a credit card, but the rates of interest would be considerably higher. The best way to improve your ratings with a credit card is to make your credit card bill payments on time, so that your every transaction is reported and you can get a good score over time. You should try to improve credit score quickly, so that you can get to the good books of credit bureaus early.
Bad Credit Score Range
Trouble starts if the credit score is in the range of 500 to 580, a range considered bad by financial institutions. Even a score below 620 is not considered to be good, and in such cases you will be charged higher rates of interest. Of course, you won't like the terms and conditions of the loan, but you don't have any option. The best way is to take it positively, and start paying off your bills on time, so that you can improve your score over time and be eligible for a loan with better terms and conditions.
There are several things which you can do to for credit repair. The most important is, never ever make late payments or default on students loan, it's always there on your credit history. Moreover, tax liens and foreclosures should be avoided, and never ignore collection calls. In case a creditor files a lawsuit, your credit will be seriously damaged, and it will take longer to file for a comeback into the bad credit bracket.
So, try to avoid a bad credit score range and make all possible efforts to come out of that bracket. Hope this information has given you a good idea of what a bad credit score is, and once you know this, take efforts to come in the good books of the creditors.
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