A bad credit score can negatively effect an individual's financial situation in a number of ways. According to most credit information, anything below a 680 credit score is considered to be poor. If an individual has a credit score below this level, he or she can expect to pay more money in interest and have a hard time getting approved for financing. If an individual finds out that he or she has a bad credit score, there are steps that can be taken to improve it.
There are multiple methods for calculating a credit score that can be used by credit bureaus. The most common method of calculating a credit score is with a formula developed by FICO, or Fair Isaac Corporation. Most people use the terms credit score and FICO score synonymously. The average FICO score of Americans is 680. This means that having a credit score of 679 or less would be considered to be a low score.
It is also important to realize that credit scores are calculated by the three major credit bureaus, TransUnion, Experian, and Equifax. Each bureau will have different information about each individual and, therefore, each person will have a different credit score with each bureau. Most lenders will use an average score from the three major credit bureaus when making a lending decision.
One of the big disadvantages of having a bad credit score is that an individual may have trouble getting approved for loans and financing. When a loan application is received, a lender will immediately look at the credit score of the applicant. This provides the lender with a numerical summary of the credit history of the applicant. If the individual has a bad credit score, the lender may not be willing to work with him or her.
If the lender does approve the application, there is a good chance the interest rate will be higher than average. Lenders have to be compensated for taking on the additional risk associated with working with an individual who has a bad credit score. This means that individuals in this category will have to pay more money in interest over the course of the loan.
If an individual is dealing with a bad credit score, there are steps that can be taken to remedy the problem. The individual could subscribe to a credit score monitoring service and try to dispute any mistakes on his or her credit report. Individuals in this situation should also start paying their bills on time and try to pay down credit balances.