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

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what is considered bad credit

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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 8 lenders of 2020!
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 3.20% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.89% 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 December 13, 2019, 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 12/13/2019. 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 our student 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 SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.46% APR (with AutoPay) to 7.61% APR (without AutoPay). Variable rates currently from 2.31% APR (with AutoPay) to 7.61% (without 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 2.31% APR assumes current 1 month LIBOR rate of 2.31% plus 0.75% margin minus 0.25% for AutoPay. If approved for a loan, the fixed or variable interest rate offered will depend on your credit history and the term of the loan 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.

3 Important Disclosures for Figure.

Figure Disclosures

Figure’s Student Refinance Loan is a private loan. If you refinance federal loans, you forfeit certain flexible repayment options associated with those loans. If you expect to incur financial hardship that would impact your ability to repay, you should consider federal consolidation alternatives.

4 Important Disclosures for College Ave.

College Ave Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

1College Ave Refi Education loans are not currently available to residents of Maine.

2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 1/1/2020. Variable interest rates may increase after consummation.

5 Important Disclosures for Laurel Road.

Laurel Road Disclosures

Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.


There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.


For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
For eligible Associates degrees in the healthcare field (see Eligibility & Eligible Loans section below), Lender will refinance up to $50,000 in loans for non-ParentPlus refinance loans. Note, parents who are refinancing loans taken out on behalf of a child who has obtained an associates degrees in an eligible healthcare field are not subject to the $50,000 loan maximum, refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for more information about refinancing ParentPlus loans.


Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).

Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.

All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.

For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.


The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.


The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.


After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.

We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.

We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.

If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.


This information is current as of November 8, 2019 and is subject to change.

6 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.

7 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 1.76% effective November 10, 2019.

8 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.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 12/019/2019 student loan refinancing rates range from 1.90% to 8.59% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.

1.99% – 6.89%1Undergrad
& Graduate

Visit Earnest

2.31% – 7.36%2Undergrad
& Graduate

Visit SoFi

2.06% – 6.81%3Undergrad
& Graduate

Visit Figure

2.62% – 6.12%4Undergrad
& Graduate

Visit College Ave

1.99% – 6.65%5Undergrad
& Graduate

Visit Laurel Road

1.99% – 7.06%6Undergrad
& Graduate

Visit Splash

1.85% – 6.13%7Undergrad
& Graduate

Visit CommonBond

1.90% – 8.59%8Undergrad
& Graduate

Visit Lendkey

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. 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 to help you understand what you are buying. Be sure to consult with 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.

Published in Credit & Debt,