A very bad credit score can have a serious impact on your ability to borrow money, get credit and get approved for any type of financial product like a mortgage and more. Many people across the USA find themselves with very bad credit scores, effectively ‘locking them out’ of loans and credit options. When it comes to borrowing money, whether a payday loan, a cash advance or anything else, lenders will make a judgement with regards to the credit score and creditworthiness of a borrower.
Those with bad credit or very bad credit will be deemed to be riskier lending prospect, meaning they are deemed to be less likely to repay any loan they borrow on time if at all.
Having a good credit score on the other hand, will better help you secure employment, rental properties and even loans. However, what happens if you have a bad credit score or even a very bad credit score?
Read on to find out what a very bad credit score is, how this might affect you, and what can be done to improve a very bad credit score.
What Is a Credit Score?
A credit score is a number which represents an individual’s creditworthiness. Credit scores are a 3 digit number which determines how likely an individual is to borrow and repay money, pay bills and generally how good a prospect a prospective borrower is in the eyes of lenders.
Credit scores are numbers measured between 350 and 800. The higher the score, the better the credit score and vice-versa. Having a better credit score will typically allow you to take out new lines of credit more easily. For instance, getting a mortgage, car financing and credit cards, payday loans and every other type of loan you may want. A better credit score can also help you borrow larger amounts of money on more favorable terms. For example, if you need to borrow $1500 and you have good credit, a lender is more likely to approve you. If you apply and have bad credit, they may reject you, or only be willing to lend a smaller amount.
Individuals begin to build credit scores from the moment they begin paying bills, loans and other types of payments. Building a credit score as early as possible is important, as not having a credit score or a bad one will affect how easily you can get loans and other forms of financing.
How Is a Very Bad Credit Score Calculated?
There are accepted levels of creditworthiness that credit reference bureaus will use to determine a credit score. The scoring of credit scores varies by models. However, credit scores in the USA are generally measured as follows:
- Excellent = 800+
- Very Good = 740 – 799
- Good = 670 – 739
- Fair = 580 – 669
- Bad = 500 – 579
- Very Bad = 499 and below
When you search ‘what is a bad credit score’ online, you will be given a variety of answers. The answer depends on which model was used to calculate the credit report. However, generally a bad to very bad credit score is one which falls to below 580.
Keep in mind that when checking your credit score it can have a negative effect which may contribute to lowering it, if you undertake a credit search that leaves a credit footprint on your record and the credit score you see will likely be different to what lenders do when they run credit checks.
For instance, if you are looking to take out a new loan, such as an installment loan, then you may want to check your credit score to see how likely you will be accepted for it. Doing so will run a soft credit check, which you can do easily online, and therefore lower your score slightly. Similarly, when lenders run background checks they may run a soft or hard credit check and this can also alter your credit score.
What Are the Effects of Having a Very Bad Credit Score?
Having a very bad credit score will affect how likely you are to be able to borrow money, get financing and other types of loans with banks and lenders in the US. A very bad credit score will present you as a riskier borrower to lenders, and have potential limitations for you financially and personally.
For example, you may struggle to:
- Secure a federal student loan or private student loan
- Get a mortgage
- Find a rental property
- Take out a new loan e.g. credit card, payday loan or any other type of personal loan
- Get a car loan
- Secure a job more easily
While having a very bad credit score is not the end of the world, there are consequences of having one. You may also find that if accepted for loans you will have to pay much higher interest rates than other individuals, and that the loans offered to you will be fewer. Ultimately, having a very bad credit score can make it incredibly difficult to find lenders and credit providers that will approve you for any loan or financial product.
As a consequence, you may experience more financial and emotional stress due to a very bad credit score. Yet, it is important to remember you are not alone and there are ways to better manage your debt and to help rebuild a very bad credit score.
Can I Get a Loan With a Very Bad Credit Score?
Having a very bad credit score will likely affect how many loans are offered to you and which types of loans. Nonetheless, there are both direct lenders and loan matching services in the US which consider applicants with very bad credit scores.
Many Americans each day face financial difficulty and may want to secure a loan to help them, regardless of their credit score or financial history. Therefore, there are companies you can find either in-person or online which will consider applicants with very bad credit scores.
However, you should be prepared for potential rejection and higher interest rates being applied to your loan due to your credit history. Yet, it will still be possible to find a service which will help get you the loan you need with a very bad credit score and help you rebuild your credit rating.
What Loan Can I Get With a Very Bad Credit Score?
Getting a loan if you have a bad, or very bad credit score or even no credit score at all can be extremely tough. However, you can be reassured that there are trustworthy lenders and loan matching companies available out there across the US which will allow you to borrow the money you need for financial hardships.
Typically, if you have a bad or very bad credit score you will likely have to pay higher interest rates than those with fair to excellent credit scores. Yet, you are still eligible for getting the money you need whether that be £400 or $3,000 there will be the right type of loan available for you.
In addition, you may be required to pledge an asset such as a house or car as collateral if you cannot repay the loan. Likewise, you may be required to provide a guarantor such as a family member or trusted friend who act as back-up if you cannot or do not repay the loan. Keep in mind, however, that using a guarantor and not being able to repay the loan may lead to straining relationships.
Therefore, it is important to consider all avenues and any alternative options to loans when you have a very bad credit score. Nonetheless, you can still be accepted for short-term personal loans, both secured and unsecured, particularly if you go with a lender offering bad credit loans. The chances of securing a long-term loan is less likely, but still possible if you have a very bad credit score.
Furthermore, to be eligible, you must live in a state where it is legal to borrow a loan and also eligible to borrow a loan. Most lending companies set out some basic eligibility criteria such as being a US citizen, have a regular income, be at least 18 years old and able to provide proof of address, income and any contact details.
How Can I Improve a Very Bad Credit Score?
If you are currently experiencing a very bad credit score, you can be reassured that you can begin to improve it through following some simple tips and changing your spending habits. Generally, people get very bad credit scores by not repaying loans, defaulting on loans and extending repayments for too long. Additionally, taking out too many loans at once will have an effect on your credit score.
You can, however, go about fixing a very bad credit score over a period of time, although this will still not be guaranteed. There is no set guidance to fixing a very bad credit score, but following these steps below could help improve your very bad credit score:
1. Only Borrow What You Need
While this might seem an obvious step, many Americans each day take out too much money for what they can afford. Budgeting your income alongside outgoing expenses will help ensure you repay things on time and avoid future debt.
If you have a very bad credit score and believe borrowing a loan will help, then you can do so. But borrowing too many loans at once, and applying to take out new forms of credit without properly managing your finances will worsen your credit score over time. Be mindful of who and where you apply for loans with, and keep a tabs on your credit score as you check it along the way.
2. Pay Money Back On Time
One of the major causes to a very bad credit score is missed or late payments. While it might seem impossible to manage all of your payments, there are some budget tips online you can follow and ways to reduce your outgoing expenses.
Being mindful of what comes out of your pocket each day can help you keep track of your finances better. This way, if you have any loans currently being paid back you will be able to ensure they are repaid on time. Missing, avoiding or paying back money late will only lead to your credit score worsening. Furthermore, in different states across the US, the penalties can differ, should you forfeit what you need to pay.
However, if you do not have the funds to currently pay off debt or types of loans then you could seek professional financial advice, talk to your current creditors or even a trusted family member or friend. There is no shame in asking for financial help when you need it.
3. Avoid Maxing Out Credit Cards
Another way to avoid worsening your credit score is by avoiding maxing out near or to your credit card limit. Credit cards normally have limits on how much you can use, yet it is key to not get close to the limit as doing so will worsen your credit score.
If you have a credit card and depend on it each month, ensure you have payments automatically set up so you can repay it accordingly each month. This way, you can slowly begin to rebuild you credit score.
4. Close Old Bank Accounts
If you have numerous bank accounts and credit accounts such as old credit cards, which you no longer use then you may want to consider closing them. Dormant bank accounts or credit cards you no longer use can be closed. Conversely, closing credit accounts could also lead to worsening your credit score – it is all about balance.
Closing old accounts, such as Netflix, Spotify or Apple Music may also help rebuild your credit score. Having too many outgoing payments will not only lessen how much money you are left with each month, but also present you as possibly irresponsible to future lenders.
How Can I Check My Credit Score?
You can check your credit score through your bank or any creditors you may have. You can also check your credit score online. Checking your credit score is possible, and will not negatively impact it overall.
If you request to view your credit score, this will be in the form of a ‘soft inquiry’ – and will then stay on your records for 12 to 24 months on average and only visible to you.
In contrast, a ‘hard inquiry’ or credit check is when you apply for a loan and a company runs a thorough background credit check. This, instead, will affect your credit score so it is key to avoid taking out too many loans and applications all at once.
