How to Improve a Bad Credit Score

Learning how to repair a bad credit score is not hard with a little help. However, checking your credit score and seeing a number less than 600 can be frustrating and disappointing because it classifies you as having a bad credit score. The cost of bad credit comes at a high price.

Having a bad credit score can prevent you from being approved for a loan or credit card. It can also cause you to pay high-interest rates on the credit card or loan you’re approved for. A key piece of credit management is to have a solid way to monitor it monthly. There are many credit report services that do just that.

If your credit score is below 600, we have some tips to help you improve a bad credit score. Before we get started, let’s go over the different credit scores ranges and how they are calculated.

Credit Score Ranges for FICO and VantageScore

FICO and VantageScore are the two most common credit scores used by creditors and lenders. They have similar ranges, and some are more forgiving than others. For example, a poor FICO score is any credit score that is 579 or lower, while a poor VantageScore is any score below 600 points.

Let’s dissect the credit score ranges for both FICO and VantageScore so that you get a better understanding of why a credit score less than 600 is considered a bad credit score.

What are FICO Credit Score Ranges?

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

A FICO credit score of 600 or lower falls in the low end of the fair credit score range. Because of this, your chances of being approved for a loan or credit card may be low. Alternatively, you may get approved for the loan or credit card with a credit score of 669 or lower, but it comes at the cost of a high-interest rate.

What are VantageScore Credit Score Ranges?

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

A VantageScore credit score of 600 or lower falls in the poor credit score range. Approval for financing through a credit card or a loan may be nearly impossible if the lender is looking at your VantageScore credit score. So, it is important to know what a good credit score looks like.

What is the Cost of Bad Credit?

Bad credit comes with a price. A bad credit score gives you a virtual scarlet letter that tells lenders or creditors that you are a risky borrower because of your credit history and behavior. Because of this, you will be less likely to get the loan or credit card you are applying for, or you may be approved for the loan or credit card but with a high-interest rate that will cost you monthly.

Sometimes applying for a loan is beyond your control, and you haven’t had time to improve your credit score. You may need to purchase a new car because yours was totaled in a car accident. With a bad credit score, you may be denied the car loan to which you are applying. You would require you to have a cosigner (someone who has a better credit score who would be financially responsible if you fail to make the payments) to be approved for the loan.

Renting an apartment will also likely require a credit check. A bad credit score may prevent you from moving into the apartment of your choice and may require you to narrow your search and sacrifice some options. A good starting point to understanding this world is, to begin with, what a credit score even is.

Some employers may also check your credit score to see how responsible you are with finances. They may not dive into your full credit report but instead check your score to see where you fall in the credit score range. If your credit score is below 600, employers may consider you a risk to hire, especially if you are applying for a position that manages money, finances, or invoices.

How to Improve a Bad Credit Score

A bad credit score is not permanent with the right amount of work, and we’re here to give you some fail-proof tips for how to improve a bad credit score.

Tip #1: Pay Down Balances

You should pay down the balances on your credit cards so that your credit utilization falls below 30%. Different factors make up your credit score, with one of those factors being credit utilization. Credit utilization makes up 30% of your credit score, making it the second most important factor that credit bureaus consider when calculating your credit score.

Your credit utilization rate is calculated by dividing the total balance of all your credit cards by the total credit limit of all your credit cards. When you pay down balances on your credit card accounts, your credit utilization ratio decreases. Try to get your credit utilization down to 30% or lower to improve your credit score.

Tip #2: Use a Cosigner for a Loan

Lenders regularly approve accounts for those with bad credit scores who have a co-signer added to the account. Not only will a cosigner with a good credit score help you get approved for the loan you are applying for, but they will also help you improve your bad credit score as long as you make the payments on time.

A cosigner will only help you improve your bad credit score if you stay on top of payments by making them on time.

Tip #3: Check Your Credit Report Regularly

Don’t wait until it’s time to apply for a loan to check your credit score. Check your credit report at least once a year to ensure there is nothing negative impacting your score. Stay on top of your credit report by reviewing all of your information to ensure it is accurate and valid.

Should you find an error on your credit report, you can file a dispute with the credit bureau that has reported it. The error will be investigated and removed from your credit report, potentially improving your credit score as early as the following month.

Conclusion

A bad credit score isn’t a life sentence, but you need to get started today if you want to improve it. Each credit bureau is required to provide you with a free credit report each year. Once you receive it, you should review it and check it for any errors or misinformation and then dispute them accordingly.

From there, make sure that you make your monthly payments on time and decrease your credit utilization by paying down the balances on your credit card accounts. You should begin to see your credit score improving within just a few months after putting these practices into play.