Low vs High Credit: How It Affects You

Your credit score is a single, calculated number that banks, mortgage companies and other financial institutions use to gauge your financial health and reliability as a borrower. The better your credit score, the likelier you are to be approved for a loan.

For some, credit scores and how they are formed might seem confusing. However, these scores are relatively to understand. They are based on several factors, including your:

  • Current debt load and debt-to-income ratio.
  • History of borrowing and repaying money.
  • Available open lines of credit compared to your anticipated income.

What is considered a low credit score?

Standard credit score scales run from a low of 300 to a high of 850.

  • 720 and above is considered an excellent score.
  • 690 to 719 is considered a good score.
  • Any score below 690 is considered low.

The closer to 300 your score falls, the worse it will be perceived by lenders.

However, keep in mind that a “low” credit score is relative. Lending institutions have their own requirements for whom they will lend to. Therefore, it’s important that you know what a “low” score is for the company you want to borrow money from.

How does having a low credit score affect me?

How to improve credit score ratings is a topic of tremendous interest because the penalties for having a low credit score are so high. Consumers with low or bad credit:

  • Are less likely to receive credit cards, car loans, mortgages and other types of credit.
  • Typically receive stricter and less favorable terms when they do obtain credit.
  • May be less likely to obtain positions related to handling business finances.

Together, these penalties mean that consumers with low credit scores are less able to access the tools and resources they need to succeed in life. Many consumers with low credit scores will struggle significantly more than their peers to buy vehicles, purchase homes and secure good jobs.

How can I improve my credit?

Understandably, many consumers want to know the steps they can take to repair their poor credit scores. Fortunately, low or bad credit scores do not have to be difficult to repair. While not all of the following options offer fast credit repair, some of them can cause improvements quickly.

If you want to improve your credit, consider taking the following steps:

  • Make sure your credit history is accurate. Inaccurate records on your debt or repayment status can unnecessarily lower your score. Review a recent copy of your credit report and contact the report provider about corrections, where appropriate.
  • Open or close credit card accounts. The amount of available credit you have impacts your credit score. Having too many credit cards can lower your score, even if you are not using them or are keeping them paid off. Alternatively, having no credit at all can also hurt your score, so if you have no credit cards, open and begin periodically using at least one to create a positive payment history.
  • Consolidate credit card debt into personal loans. Personal loan debt is calculated differently than credit card debt. If you have a large amount of credit card debt, you may want to think about requesting a personal loan to reduce the amount on those cards, as this may improve your score.
  • Charge regular small purchases to a credit card and pay off the balance every month to begin building a strong credit record. Even if you do not need to charge these items, doing so can show lenders that you are a reliable payer and improve your score over time.

Credit Reporting Companies

Are credit repair services right for me?

Credit repair companies specialize in helping consumers improve their credit scores. They do this primarily by checking your credit report for mistakes and inaccurate or outdated information and contacting the lenders or report-issuers involved to have that information corrected.

Technically, the sole value of legitimate credit repair companies is that they do the work for you, saving your time and stress. Just like you, professional companies can only correct errors, not remove or change true or accurate records, regardless of how negative they are.

Moreover, these companies do not typically offer credit or financial counseling, which means they cannot help you develop new habits or long-term plans to improve your score, either.

If you decide to use a credit repair service, it is essential that you read credit repair reviews and take other precautionary steps to make sure you select an honest and trustworthy company. While many such services will promise to raise a credit score 100 points overnight, that type of extreme result is rarely possible.

Look for proven and reliable services such as Sky Blue Credit Repair or Lexington Law Credit Repair that you can trust to handle your accounts ethically.

What credit score do I need to get approved for a loan?

Have you ever wondered what credit score you need to buy a house or car, or why you need different credit scores to be approved for different loans? Each lender sets its own rules about minimum credit score requirements depending on industry standards, their personal risk strategies and other factors.

Perks of Having a High Credit Score

No matter what type of loans you may be interested in, having a high credit score is always in your best interest. Consumers with high credit scores are significantly more likely to:

  • Be eligible for different types of credit. The better your credit score is, the more likely creditors are to trust you to repay any money you borrow. This means that you’ll be available for different types of credit in the future, such as mortgages or high-limit credit cards. (Note: Having a variety of types of credit can also improve your credit, so your diverse lines of credit will also help you to maintain a healthy credit score.)
  • Receive favorable loan terms. If you’re a trustworthy borrower, you’re more likely to have loan terms that benefit you. Generally, this means you’ll have a lower interest rate for whatever amount you borrow, which will save you money on the length of your loan.
  • Be eligible for grace periods or forgiveness if they miss a payment. Mistakes happen, and there may come a time when you miss a credit card or loan payment. If you’ve been faithful with your payments in the past, the bank you owe may be more likely to give you some extra time to pay what you owe – without it hurting your credit score.
  • Access amazing credit card rewards. Having a high credit score can give you access to top-of-the-line credit cards, which offer premiere rewards. If you have an excellent credit score, you may be eligible for cards that offer massive sign-on bonuses, which you can later redeem for hotel benefits or airline miles. You might also qualify for a cash-back card, which can help you make money whenever you spend.

What type of score do you need for these types of loans?

You can expect different minimum credit score criteria from different types of credit lines or checks. For example:

  • Mortgages. Lenders plot your credit score for mortgage loans on a sliding scale. Consumers with scores above 720 are considered ideal. Scores between 690 and 720 are viewed as “good,” while scores between 640 and 680 are average. While there is no hard minimum credit score for home loan applications, lenders are generally reluctant to give credit with potential homeowners with scores below 640.
  • Car loans. As with mortgages, there is no set minimum credit score for car loan applications. However, in general, borrowers are most likely to be approved for new car loans if they have a score of 713 or higher. The average score for used-car loans is 656 or better.
  • FHA loans. The minimum credit score for Federal Housing Administration (FHA) loan approval is 500. You will need a score of at least 580 to be eligible for the lowest permitted down payment options.
  • Apartment rentals. There are no standardized rules for minimum credit scores when it comes to apartments. In fact, renters often have the ability to work around bad credit to a certain degree when looking to rent a home by getting strong references from previous landlords or offering larger security deposits. However, stronger scores will work to your advantage.
  • Personal loans. The terms for personal loans can vary widely. Many consumers believe that for a personal loan a 600 credit score is the necessary minimum, as this is a generally average score. In some cases, this is true, but you may be able to get a small personal loan from your local credit union or financial institution with a lower score. As always, higher scores increase your likelihood of receiving both credit and good terms on which to repay it.

What credit score should I aim for?

While some consumers focus on personal questions like “What’s a good credit score to buy a house?”, many consumers have more general concerns.

So what kind of credit score should you aim to build if you don’t have any specific credit goals right now? Typically, experts suggest that 690 is a reasonable goal. Considered a “good” credit score for most purposes, it will set you up for success regardless of what type of credit you decide you need down the line.

Top Tips for Improving Your Credit Score

  • Remember that rebuilding your credit takes time. Repairing your credit score isn’t an easy fix. It takes time and dedication to improving your score. If you don’t see immediate results, don’t worry. Repairing credit damage takes steady, consistent work.
  • Keep your spirits high. Since repairing your credit takes time, it’s easy to lose your drive and want to quit halfway through your repair process. Don’t. The more dedicated you are to improving your financial health, the easier it will be to stick to your plan.
  • Stick to your budget. And if you don’t have one yet, create one. Maintaining a working budget is one of the best ways you can keep track of your finances from one month to another. You can start by keeping track of whatever income you earn and allocating funds to different expenses you have. You can even micro-track your spending by setting daily or weekly budgets. That way, you know exactly where your dollars are going.
  • Have a goal in mind. Saving for a dream vacation to Hawaii? Or do you have your eye on a house you’re itching to buy? Visualizing your financial goals may help you to stick to them when you’re cutting expenses from one month to the next.
  • Celebrate little victories. Credit repair is no easy task, and it takes time and self-discipline. However, that doesn’t mean you can’t have some fun along the way. Treat yourself to a nice dinner when you finally pay off a credit card bill you’ve had dangling over your head for a few years or when you’re halfway to your financial goal. By having mini-celebrations along the way, you can refocus and build the stamina you need to finish what you started.