What is a bad credit score? Plus how to improve

Your credit score is the number lenders use to assess the credit risk before deciding whether or not to extend credit to you. There are different models for scoring credit, but the two most popular, FICO and VantageScore, range from 300 to 850. Under this rubric, excellent credit is anything above 800; “very good” FICO scores range from 740 to 799; a “good” score ranges from 670 to 739; and 580–669 is considered “fair.” 

Any score below 580 is considered poor. 16 percent  of consumers fall in this range, with scores from 300 to 579. These scores are low enough that they might have a negative impact on your financial future.

Your credit score is the number that lenders check when determining your eligibility for all types of credit, including auto loans, personal loans, home loans, and credit cards. If you have bad credit, you might be rejected for the type of loan you want, or if you are approved, you might be stuck with higher interest rates. 

Even if you’re not planning on buying a car or a house anytime soon, a bad credit score can make it harder to rent an apartment. According to a 2017 survey report from RentCafe, individuals with higher credit scores are more likely to be approved for rentals. The average credit score of approved applicants was 650, while the average credit score of rejected applicants was 538. Applicants with a credit score in the 500–600 range were approved for apartments 67% of the time, while applicants with a credit score below 500 were only approved 48% of the time.

Consumer credit bureaus pull your credit file and use the information to create your three-digit credit score. There are five factors they use to determine this number:

1. Payment history: This accounts for the largest chunk of the credit score (35%) and shows whether you make loan and credit card payments on time.

2. Accounts owed: This is the second largest part of the credit score (30%) and has to do with how much money you currently owe on your credit cards and loans. 

3. Average age of credit: The age of your credit accounts for 15% of your credit score. 

4. New credit: This makes up 10% of your credit score and refers to any recent checks on your credit report. (This does not include soft inquiries, which are requests you make yourself.)

5. Credit mix: The final 10% of your credit score is determined by types of credit accounts: revolving and installment. Having a mix of both revolving and installment credit looks best to lenders. 

If you have poor credit, it can take years to rebuild. Fortunately, there are proven ways to improve your score.

1. Safely pay off credit card debt. It’s easy to get stuck in a cycle of making the minimum payment on credit card balances, and end up paying more in interest than you borrowed in the first place. In addition to the burden this has on your finances, it also can have a negative impact on your credit score if your utilization is high and payments infrequent. Paying off your credit card debt is an important first step to improving your credit score.

2. Create an emergency fund. Your credit score might not reflect how much money you have in the bank, but an emergency fund can prevent you from carrying a balance on your credit card in the face of an unexpected cost, which will, in turn, lead to better credit.

3. Ask for a higher credit limit. Since one of the factors determining your credit score is credit usage (i.e., how much of your credit limit you actually spend each month), a higher credit limit can help get your usage way down. Keep your credit utilization ratio below 30%. If your credit score is too low to qualify for standard credit cards, consider applying for a secured card, which requires an up-front deposit.

4. Turn on autopay. On-time payments account for the biggest portion of your credit score. To make sure you never, ever miss a monthly payment, turn on autopay. Check your statement for any errors before you make the payment. If your credit card issuer doesn’t have the autopay feature, set an alarm or write it in your calendar (or both!)—just find a way to pay your bill the same time every month. 

5. Ask your landlord and utilities companies to report your payments. If you always pay your rent and utilities on time, that should count toward your credit history, right? Typically, it doesn’t factor in, but you can ask your landlord and utilities companies to start sending this information to the major credit bureaus, and it might help boost your credit score.

6. Check your credit report. Regularly monitoring your credit score can help you track your progress and flag any errors. Your credit score isn’t the only thing that’s important to landlords—credit reports include additional, specific information, such as late payments on loans or breaking an apartment lease. Checking your credit report occasionally will alert you to any mistakes, and you’ll be more prepared to discuss the contents of your report with a potential landlord.

7. Protect against fraud. Fraud can seriously mess up your credit, so make sure to review your bank account and credit card statements in addition to your credit report. Keep your passwords, PINs, and physical cards safe, and shred documents with identifying information.

To improve your credit score—and stay out of debt—you may need to adjust your personal budget. Rent is one of the easiest fixed expenses to dial down by coliving—that is, living with roommates. Bungalow offers affordable private rooms in shared homes in 10 cities nationwide.  Bungalow rooms are less expensive than solo living options like studio apartments, and our homes come with furnished common spaces and stocked kitchens, reducing your move-in cost. Find a Bungalow near you.