Everything You Need to Know About Bad Credit (and How to Fix It)

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With multiple credit scoring models and agencies out there, it can be hard to answer a very important question: what is a bad credit score? And even more importantly: what can you do to fix bad credit if you have it?

If it turns out your credit score isn’t so great, the good news is there are steps you can take to improve it. Here’s what you can do to get that very important three-digit number back to where it needs to be.

What is a bad credit score?

Conversations around credit scores usually refer to the two most common ones: FICO Score and VantageScore.

  • A FICO Score ranges from 300 to 850, or 250 to 900 for “industry-specific” scores.
  • A VantageScore ranges from 300 to 850.

Essentially the higher your number is, the better your credit score is.

According to credit reporting giant Experian, a bad credit score for FICO is 579 and below. Scores in that range are ranked as “very poor,” while a “fair” credit score is 580 to 669. For VantageScore, a bad credit score is called “very poor” and is 549 or below, with “poor” as the next rung up at 550 to 649.

If you’re curious about how lenders process this information, consider these statistics. As of 2015, Experian reported the following:

  • Approximately 61 percent of consumers with a FICO Score of 579 or less are likely to become seriously delinquent in the future.
  • Approximately 27 percent of consumers with a FICO Score of 580 to 669 are likely to become seriously delinquent in the future.

In short, if you have what is considered bad credit (like a FICO Score of 580 or lower), then you indicate to lenders that you might be a risky borrower based on previous statistics of consumers with similar scores.

What bad credit means for you

Now that we know what is bad credit, what can we do about it? Well, first it’s important to understand the consequences of having bad credit before you can improve it.

Here are a few side effects of bad credit to keep in mind.

1. It’s harder to get approved for new credit

As stated previously, a credit score is considered a predictor of risk for lenders. Therefore, the lower your credit score is, the harder it will be for you to get approved for new credit.

So if your credit score is really low, you should start with a secured credit card before seeking approval from a lender for a traditional credit card. Secured credit cards require a down payment security deposit, which is why their easier to be approved for if you’re new to credit or have bad credit. Typically, after using a secured card for half a year or so, you can qualify for an upgrade to a traditional credit card. That upgrade is predicated on proper usage, though.

In other words, if you get a secured credit card, make sure you always pay on time and it won’t be too long before you can move up to a traditional credit card. And once you do, you’ll get your security deposit back if you don’t owe anything on the card.

Mortgages and auto loans could be totally out of reach until your score goes up since those require higher credit scores. The good news is, if you use a secured card regularly and always pay on time, your credit score can start to increase as you build your length of credit history and history of positive payments. This makes secured cards a great tool for rebuilding credit.

2. You’ll pay more for credit and possibly insurance

Although a bad credit score doesn’t always mean you can’t get approved for credit, it’s more likely that the credit you’re approved for will cost more.

To illustrate the difference, here’s an an example from MyFico of how one mortgage shakes out for two different credit scores. If you want a 30-year fixed-rate mortgage of $280,000 you will pay:

  • 3.49% APR with a credit score of 760.
  • 5.085 APR with a credit score of 620.

This might not seem like much of a difference at first until you see the actual payment breakdown.

  • $1,256 per month with a credit score of 760.
  • $1,517 per month with a credit score of 620.

The lower credit score costs an extra $261 per month or $3,132 per year.

And when you look at the difference in interest paid in 30 years, it’s just as significant.

  • $172,131 in interest for 30 years with a credit score of 760.
  • $266,055 in interest for 30 years with a credit score of 620.

In other words, the person with the lower credit score is paying an extra $93,924. That’s almost $100,000 more just for having a lower credit score.

As if that’s not bad enough, a 2016 study from Insurance Quotes found that someone with fair credit could pay “28 percent more for car insurance than a driver with excellent credit.”

What’s more, someone with poor credit could see a premium increase of 104 percent.

3. It could affect your future employment opportunities

There is the possibility that your credit report can affect your future employment opportunities.

While employers can pull your credit report, a study done for The National Bureau of Economic Research states, “Credit reports […] are of limited consequence for labor market outcomes, where employers rely on a much broader set of screening mechanisms.”

However, some states are banning this practice altogether, which you can read more about in Bloomberg.

The main thing to be aware of is bankruptcy filings and judgments because those remain on your credit report for several years. However, once they’re off your report, they no longer present an issue.

4. It might prevent you from getting housing

Landlords pull your credit score to see if they can trust that you’ll pay the rent. And even if you’ve never missed a rent payment in your life, a bad credit score could prevent you from getting an apartment.

Additionally, a bad credit score could prevent you from getting a mortgage. This is a loan that could cost hundreds of thousand of dollars and last for 30 years. It’s not something to enter into lightly and lenders want to see borrowers with strong and positive credit histories.

How you can improve your credit

The consequences of having bad credit are frightening, to say the least. But they’re not forever. If you start working on your credit diligently right now, then you will be able to see an improvement – and it won’t take five years to see it. ABC News has illustrations that break down how long it takes to see improvements in credit scores after various changes. Here are just a few examples they share:

  • It could take three or more months to recover from maxing out your credit card or closing an account.
  • It could take one to two years to recover from missed payments.
  • The big one to worry about: it could take seven to ten years to recover from bankruptcy.

Here are four habits you can adopt to begin improving your credit and financial outlook:

1. Fix errors on your credit report

Don’t let credit reporting errors keep you from the credit score you deserve.

Pull up your credit report for free at AnnualCreditReport.com and follow these steps to dispute any credit report errors you find.

2. Start paying down debt

Thanks to something called credit utilization, a maxed out credit card can seriously hurt your credit score. The reason for this is credit utilization, which represents the amounts you owe on revolving credit in comparison to your credit limits, makes up 30 percent of your score.

The higher your credit utilization (or the closer your balances are to your limits), the worse your score. One easy fix for this is to increase your credit limit, but that’s not easy to do with bad credit.

Therefore, the best thing you can do is focus on paying down your debt. The more distance that grows between your balances and your credit limits, the better your score will be. The ideal credit utilization is 30 percent or lower – meaning your balances should not be more than 30 percent of your total credit limits.

3. Continually make payments on time

Your payment history makes up more than 30 percent of your credit score. And any late payment can be reported (including cell phones and library fines).

That’s why it’s important to make all of your payments on time. And if you can’t, talk to your creditor about setting up a payment plan or reviewing other repayment options they have before you go delinquent.

4. Keep old accounts open

The length of your credit history also factors into your credit score. So you can have an easy win in this category by keeping those old accounts open and in good standing as long as possible

5. Rinse and repeat

If you want to see your credit score go from bad to good, then it’s important to adopt all four of the above habits and keep at them for years to come.

A bad credit score isn’t forever

By staying on top of your credit score, you can rest assured that you’re giving yourself access to the best financial opportunities out there. If you know you have a bad credit score right now, don’t let that discourage you. Anyone can take their credit score to the next level if they diligently work at it.

Follow the best practices listed above, keep checking your credit report in case of any errors, and stay hopeful that you’ll see an improvement. It isn’t always easy, but you can move past financial missteps from the past to create a much brighter financial future.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.

Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.

However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.899% APR to 7.979% APR (with AutoPay). Variable rates from 2.470% APR to 6.990% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.470% APR assumes current 1 month LIBOR rate of 2.30% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of November 1, 2018, the one-month LIBOR rate is 2.29%. Variable interest rates range from 2.79%-8.39% (2.79%-8.39% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled. Applicants with an Associate’s degree or with no degree must have made at least 12 qualifying payments after leaving school. Qualifying payments are the most recent on time and consecutive payments of principal and interest on the loans being refinanced. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a cosigner who is a U.S. citizen or permanent resident. The cosigner (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a cosigner will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.

2.47% – 6.99%3Undergrad
& Graduate

Visit SoFi

2.47% – 6.30%1Undergrad
& Graduate

Visit Earnest

2.51% – 8.09%4Undergrad
& Graduate

Visit Lendkey

3.02% – 6.44%2Undergrad
& Graduate

Visit Laurel Road

2.48% – 6.25%5Undergrad
& Graduate

Visit CommonBond

2.79% – 8.39%6Undergrad
& Graduate

Visit Citizens

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.