What Is the Worst Credit Score You Can Have?

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When it comes to credit reports, the worst credit score you can possibly have is 300, and the highest score you can have is 850. According to Experian, one of the three leading credit bureaus, the average credit score in the United States is 714.

No matter where on the credit score meter you rate, it’s important to understand if potential lenders and creditors view your score as poor, fair, good, very good, or excellent. This article takes a closer look at credit scores, the factors that impact these scores, and how to know where you rank with other consumers.

What Is a “Bad” Credit Score?

Credit bureaus, such as Experian, Equifax, and TransUnion, collect and maintain financial records pertaining to consumers around the country. The details from these records are then used to calculate your credit score. FICO is the most common credit score available, but some lenders and creditors also check other credit scores, such as VantageScore.

FICO scores are rated on a scale from 300 to 850, which is broken down into the following subgroups:

Creditors and lenders each have their own set of standards as to which credit scores are acceptable and which are too low. However, in most cases, any score under 600 is considered a “bad” credit score and could impact your ability to secure credit, among other consequences.

What Are the Consequences of Bad Credit?

Having bad credit can significantly impact your daily life in ways you may not expect, such as:

Keep in mind that each creditor, lender, and service provider has its own set of rules and regulations when it comes to credit scores. As you start to rebuild your credit, you may need to shop around to find a vendor willing to work with you.

How Many People Have Bad Credit?

Research shows that as many as 16% of consumers in the country have no credit score because credit reporting agencies don’t have enough information on these people to calculate a score. Even more alarming is the fact that more than 100 million consumers have bad credit or no credit at all. This statistic means that more than 1 in 3 Americans are struggling with credit issues.

If your score falls within this “bad” credit level, it might give you some solace to know so many others are in the same boat. This doesn’t mean you shouldn’t still take steps to improve your score, though, because having a low credit score does come with some significant consequences.

How Can You Improve a Bad Credit Score?

Several factors can make a significant impact on your overall credit score. Here’s a look at the top five surprising things that may affect your credit score, as well as actionable tips to help you build your rating.

1. Lack of Credit History

It’s possible to have no late payments or outstanding debt on your credit history and still have a low credit score. That’s because having a limited credit history can significantly impact your credit.

The best way to overcome this challenge is to start developing some credit. Consider opening a utility, such as electric, gas or cell phone, in your name. Keep in mind that some utility companies may require you to pay a security deposit before you can start service. You can also open a secured credit card.

2. Credit Utilization Ratio

Your credit utilization ratio compares the difference between all your credit balances and the amount of credit you’ve already used. This ratio is critical and accounts for 30% of your credit score. Most lenders like to see this ratio sitting below 30%.

If you currently have a high credit utilization rate, it’s likely impacting your overall credit score. Work toward paying down some of your debt and refrain from using any more credit until you can bring the ratio well below the 30% threshold.

3. Payment History

Your current and past payment history is one of the most important components of your credit report and accounts for 35% of your credit score. It’s important to realize that any late payment or overdue payment can sit on your credit report for 7 years.

If you already have late payments on your account, there’s little you can do about it. But you can take steps now to make sure no more late payments show up on your account.

Start by setting a budget to make sure you can afford all your outstanding debt. Next, consider setting up automatic payments when possible. This step can make sure your payments are always made on time.

4. Mixture of Credit Accounts

About 10% of your credit score is based on the type of credit accounts you have. Lenders like to see a nice mixture of installment credit accounts, such as personal, auto and home loans, and revolving credit accounts, including credit cards and HELOCs. To improve your credit score, you should work toward building a mixture of these credit accounts.

5. New Credit Inquiries

Having too many credit inquiries on your credit report can also lower your credit score. A credit inquiry occurs when a lender runs a check on your credit. During the pre-qualification process, lenders often run a soft inquiry, which doesn’t impact your credit score. When lenders request your full credit report, however, it’s a hard inquiry and does negatively impact your score.

This can seem like a catch-22. To build your credit, you may need to open more credit accounts, but doing so can increase the number of new credit inquiries and lower your score. The trick is to make sure you’re not trying to open too many accounts or loans at the same time.

Stay on Top of Your Credit

The most important step you can take to improve your credit score is to stay on top of your credit report. You can request a free credit report from all three main credit reporting agencies—Experian, Equifax and TransUnion—once a year. You can also sign up for Credit.com’s free Credit Report Card.

The details on these reports can help you make sure everything on your credit report is accurate and up to date. Make sure you take the appropriate steps to remove any inaccurate information from your credit report. Additionally, having access to your report and credit score can help you determine what areas you need to focus on to rebuild your credit.

The post What Is the Worst Credit Score You Can Have? appeared first on Credit.com.

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