What Is Considered a Bad Credit Score?

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People with bad credit scores are considered high-risk borrowers and are often denied borrowing opportunities. However, not all poor credit is created equal, and there are ways to improve your score that don’t require massive debt. Knowing what makes for a ‘bad’ credit score and what doesn’t is key to improving your situation. In this article, we’ll discuss what makes for a bad credit score and how you can fix it.

Your Credit Score Is Calculated

Your credit score is calculated based on the information in your credit report, which is a summary of your credit histories with various lenders. Your credit score ranges from 300 to 850, with 700 being considered a perfect score. The higher your score, the more likely you are to get approved for credit.

Your credit score is primarily based on three factors:

  • Your payment record
  • The amount of credit you are using
  • The amount of credit you have available

Your payment record measures how you have paid back creditors in the past. It takes into account all of your payments, including payments on time and off time, whether you were paying more or less than the minimum payment, and any missed payments. The reason your payment history is so important is because it’s one of the best indicators of your creditworthiness. If you’ve been paying on time for the most part, your credit score will most likely rise as a result.

The amount of credit you have available measures how much credit you are able to use. This includes all of your available credit, including credit cards, car loans, and mortgage loans. The credit cards you have open and whether you are carrying a balance on any of them are all factors that go into your available credit. The amount of credit you have available is one of the most important factors that determines your credit score. When you have a lot of credit available, you can easily qualify for a loan even if you have poor credit because you have more options. More importantly, it shows that you are responsible with your finances and willing to grow your credit rather than put it on a credit card and not pay back the credit card company. Your credit score will rise as a result.

The amount of credit you use measures how much credit you are putting on a credit card or using in any way. This can be a tricky one because it’s easy to say you don’t use credit and then have someone come knocking at your door with a credit card in hand. The best way to find out how much credit you actually use is by looking at your statement credit card or bank statements from the previous six months. Looking at your credit card statements in isolation from your bank statements won’t provide you with an accurate picture of how much credit you use in reality. If you’re finding it hard to track your spending, you can ask for a cash back credit card that doesn’t have an annual fee so you have fewer financial distractions. Using a cash back credit card isn’t like buying things with a credit card – it’s more like saving money with a credit card, and the more you use it, the more you save. When you use a cash back credit card, you’re not technically using credit, so your credit score doesn’t suffer.

The Three Types Of Bad Credit

Not all poor credit is created equal. There are three types of bad credit:

  • Subprime credit
  • Nontraditional credit
  • Reinstated bankruptcy

Let’s examine each one.

Subprime Credit

Subprime credit, or low-credit loan, is considered to be a loan with a high interest rate or one that requires a substantial down payment. Typically, these are payday loans or car loans for which you don’t have to be considered credit worthy. Many subprime credit cards have annual fees and high interest rates. Getting a subprime credit card without an annual fee is nearly impossible, so make sure you’re prepared to pay $450 to $600 in annual fees. Moreover, since these are considered ‘high-risk’ loans, be prepared to give up some of your rights as a consumer.

Nontraditional Credit

Nontraditional credit, or alternative credit, includes all of the following:

  • Loan products from lending institutions that are not traditional lenders
  • Credit cards from lenders that are not traditional credit card companies
  • Charity credit cards (i.e., cards from lenders that don’t charge interest)
  • Home Equity Lines of Credit (HELOCs)
  • Business loans from private businesses
  • Mobile credit cards
  • Student loans
  • Military housing loans
  • Refinancing existing debt
  • Income based repayment plans for student loans

Alternative credit is not considered good or bad credit, but it can be quite the challenge to qualify for when you need it. If you’re looking for a loan, you’ll have to prove that you are reasonably likely to repay it. The process can be quite difficult, and many people who have bad credit find themselves in a financial crunch due to unexpected expenses. In some cases, they end up defaulting on their loans and being sued by the lender. If you’re looking for a way to get some extra cash, the easiest and sometimes the only option may be to consider a quick personal loan. However, keep in mind that interest rates are typically higher for personal loans than they are for credit card cash advances or other types of secured loans. Plus, there’s the matter of what happens if you don’t pay back the loan on time. You’ll have to deal with additional fees and penalties, including possibly having to sell your house to pay off the debt.

Reinstated Bankruptcy

Reinstated bankruptcy is when a person files for bankruptcy but then continues to pay back their creditors over time. The reason this is considered bad credit is because it shows a history of not being able to pay back loans. When a person files for bankruptcy, the financial burden is shifted to the individual and their household members while the debtor is removed from being able to make financial commitments. Having this on your credit report is a black mark that keeps you from getting certain loans and credit cards. For example, if you have a mortgage application pending and you find out that you have reinstated bankruptcy, you may have to wait until the debt is paid off before you can close on the loan.

Knowing the types of bad credit that exist is critical in order to understand what makes for a bad credit score as well as how you can improve it. There are several things you can do to make sure you’re getting the best deal possible when you apply for credit or a loan, including checking out credit scores for free online or through a paper credit report. Make sure you compare apples to apples when comparing credit card offers and read the terms and conditions of the contracts carefully. By comparing what’s available in writing you’ll be sure to get a good idea of what you’re agreeing to when you accept a card or apply for a loan online.

Pros and Cons of Bad Credit Loans

Many Americans are finding it hard to pay their bills these days. Lenders are currently offering loans to these people with bad credit, but do they offer enough incentives to make the loan worthwhile? Let’s examine the positives and negatives of getting a bad credit loan.


There are many benefits to taking out a bad credit loan.

  • An 18 month zero interest rate loan can be a blessing to those in financial hardship.
  • Taking out a bad credit loan shows the lender you’re fighting for.
  • The funds you get from a bad credit loan are usually unrestricted.
  • The money you get from a bad credit loan is usually instant, so you can actually use it.
  • You usually don’t have to provide a collateral for a bad credit loan.


There are some drawbacks to getting a bad credit loan.

  • Depending on the state you live in, the funds you get from a bad credit loan are usually ‘unsecure’. This means a lender can take your car as collateral.
  • You have to hope and trust the lender to honor your agreement. If they don’t you’re stuck with whatever collateral they took. This is usually the case with subprime loans.
  • The application process for a bad credit loan can be quite tedious.
  • You might not get the kind of service you’re accustomed to from a traditional bank.


Overall, getting a bad credit loan can be a profitable move for you as long as you know what you’re getting into. Make sure the lender is a trusted company with a good reputation and a history of honoring their agreements. Check out our blog post on How To Get A Good Credit Rating for more information on how to ensure the lender you choose is going to give you the service you want and deserve.

How Bad Credit Scores Affect Borrowing

When you need money, the last thing you want to do is think about your credit history. Having a bad credit score can make you seem like a risky borrower who isn’t worth the time and effort. Finding enough creditors willing to lend to you can be challenging, especially if you have a poor credit score. That’s where a cash loan comes in. With a cash loan, you can borrow money regardless of your credit score. There are no collateral guarantees, and the money is usually available the next day. If you’re ever going to borrow money, now might be the right time to do it. Let’s explore how bad credit scores affect borrowing and why it’s generally a bad idea to assume that you’ll get a free pass because of your credit score.

Your Credit Score Has No Impact On Your Chances Of Getting Lend

No one factor, such as your credit score, determines your prospects for getting loans. Different lenders have different credit scores they consider favorable before making a loan offer. If you want to get a loan from a particular lender, you need to ask them about their loan policies or visit their website to see if they offer loans with bad credit. There’s no set formula for getting a loan, and your credit score is just one of the many factors that can affect your financial opportunities.

The Risk Of Borrowing Is More Determined By Your Income Than Your Credit Score

Your income and your credit score rank among the factors that determine your risk of defaulting on a loan. Your income, in particular, is what lenders use to gauge how likely you are to repay a loan. If you’re having a tough time making ends meet, you might want to consider looking for a cash loan instead of a personal loan because the latter has additional requirements. The best advice is to try to build up your income as much as possible while keeping your debt to a minimum. Being in the black helps a lot, too.

Borrowers With Poor Credit Scores Should Focus On Paying Back Their Loans

When you have a poor credit score and you need to borrow money, it’s imperative that you take care of your debt as soon as possible. Make sure you’re always putting money on your credit card to pay for your daily expenses. You should be using a credit card for purchases only in the case of an emergency or to make large purchases. If you’re regularly using your credit card for small purchases, you’re likely causing yourself additional financial stress that will lead to a poor credit score. The moment you start paying back your loans on time and in full, your credit score will start to improve. You’ll start looking more like a credible borrower who can be trusted to pay back their loans. It takes time to build up good credit, and it’s no easy feat. Once you do, you’ll wonder why you ever bothered trying to justify less-than-perfect credit scores.

Borrowers With Good Credit Scores Can Afford To Be Picky

Being picky when it comes to the loans you accept is often the best strategy for securing the money you need. You can apply for a cash loan and be a little bit more selective about the terms and conditions of the loan. Be sure to look for loans that offer best rates and terms. You might also want to consider looking for a personal loan broker who can negotiate on your behalf for the best possible deal. Your credit score doesn’t guarantee you’ll get the best rate or terms if you apply directly for a loan, but it certainly doesn’t hurt. When choosing your loan, take all of its benefits and drawbacks into consideration.

Borrowers With Good Credit Scores Can Also Look For Loans With Lower Interest Rates

If you’re seeking a loan but have a good credit score, it’s also preferable to look for loans with lower interest rates. The fewer interest you have to pay over the life of the loan, the better. On the other hand, higher rates tend to be associated with a bigger degree of risk. You might want to look for a fixed rate loan when you need to borrow money because variable rates often change at the whims of financial institutions and lenders. You can’t foresee how much your interest rate will change, and that makes it difficult to plan accordingly. A fixed rate loan gives you some protection against rising rates, at least. It also gives you the peace of mind that comes with knowing that your interest rate won’t change for the duration of the loan. You can’t put a price on that kind of security.

Borrowers With Good Credit Scores Can Look For Loans With No Prepayment Penalties

You have to learn to be wary of loans with prepayment penalties. These loans have an additional cost associated with them that you need to consider before making a decision. You’ll be penalized if you don’t pay back the loan in full at the end of each month. Some loans have hefty prepayment penalties, so if you’re ever going to get caught up in paying off a loan with a prepayment penalty, it’s better to borrow less than you really need. You can avoid this kind of loan by being mindful of your spending habits. You shouldn’t put yourself in situations where you have to pay back a loan with a prepayment penalty. That’s just asking for trouble. Loans with prepayment penalties aren’t good for your long-term financial health.

Borrowers With Excellent Credit Scores Can Look For Loans With No Hidden Fees Or Charges

Loans with no hidden fees or charges are ideal. You can’t beat not having to deal with charges for checking accounts, late fees, or other hidden costs. If you’re ever going to borrow money, it’s preferable to seek out loans with no hidden fees or charges. Being able to keep an eye on your spending habits is much easier when there are no hidden charges. You’ll need to be careful about the type of loan you take out, though. You don’t want to be picking up charges for things you didn’t expect and didn’t authorize. Ensure that you’re always aware of what your credit card is charging you, and try to reduce these charges as much as possible. If you’re searching for a cash loan, it’s also preferable to look for lenders that don’t require collateral as an assurance of payment. Collateral is usually required in the case of a loan in order to secure payment. If you don’t have the collateral, then the lender has less reassurance that you’ll be able to pay back the loan. You never know if something unexpected will happen and you’ll need the cash. Lenders are also more likely to check your credit score and report it to a credit bureau, so don’t be surprised if they call you for verification.

Your credit score has a lot to do with your ability to get loans. Getting a loan with bad credit is possible, but it requires a lot of effort. Your best bet is to try to repair your credit score or build up your income as much as possible. Once you can, you’ll wonder why you ever bothered trying to get a loan with a poor credit score. The key to getting a loan is to be prepared to explain why you need the money and to negotiate the best possible deal if the bank, brokerage firm, or other lender offers you terms that are not to your liking. You may not be able to avoid a bad credit score when you need a loan, but you can limit the damage by being smart about your finances and by seeking out the help of a reputable lender.