Everyone knows that a bad credit score can prevent someone from getting approved for loans. When your credit score is low, chances are that you’ll be denied the loan even if a lender approves the loan, or you may be charged a higher interest rate.
Different lenders use different in-house guidelines, and what is considered a bad credit score varies. However, credit scores are created using FICO or Vantage Score Solutions. FICO scores range from 300 to 850, while Vantage’s numerical scale ranges from 501 to 990.
Whether you use FICO or Vantage score, higher scores can help you receive competitive financing offers from lenders. But how bad can a bad credit score be?
- Renting Options
Like banks, landlords may use your credit report to ascertain your ability to pay rent on time. According to Experian, landlords ask for a minimum credit score of 620 to qualify as tenants at an apartment. Some landlords and agents are stricter, but you are on the safer side if your score is 700 or above.
Getting to a new place can be challenging when you have bad credit. But there are ways you can get around it, like getting a cosigner or offering to pay a higher security deposit before you sign a new lease. It is not impossible to rent an apartment with bad credit, but it’s more complicated.
- Utility Deposits
A bad credit score can affect you when setting up an account with a utility or Internet company. You may have to pay a deposit even before signing up to act as insurance should you fail to pay the bill. A bad credit score can also make it hard to establish a service with a cellphone provider.
Some cell phone service providers prefer users with lower credit scores to subscribe to prepaid plans or have a security deposit. A lower credit score can disqualify you from the best deals on the most sought-after devices.
In some states, you are protected against termination of access to public utilities such as electricity, gas, water, gas, or heat. If you are denied access to utilities due to a lower credit score, you can submit a letter of guarantee to act as a guarantor or co-signer agreement or pay a deposit. However, there are fewer legal protections against non-public utilities such as the internet and cable, which can guarantee you access to the services.
- Loan Troubles
The most significant disadvantage of a bad credit score is making it difficult for you to borrow. Most mainstream banks have rigorous standards that make it hard to qualify for traditional loans with bad credit.
If you have a FICO range of between 300 to 579 or a Vantage score range of 300 to 600, you’ll have difficulties borrowing car loans, mortgages, or credit cards. Even if you qualify for these loans, you’ll have to pay high interest to make up for your outstanding default level.
Many credit card issuers prefer credit scores between good and excellent; A FICO score of 670 and a Vantage Score of 700 or above. Luckily, you can still access an FHA mortgage with a credit score of as low as 500. You can check out this guide on 500 credit score credit cards.
However, you’ll need to at least make a 10 percent deposit and pay mortgage insurance, which still increases the overall borrowing costs.
- High Insurance Costs
People hardly consider this factor when racking up a big credit card bill or falling behind their loans. While some states prohibit this practice, some insurance carriers still require you to pay higher auto insurance premiums and homeowners insurance when you have a bad credit score.
Drivers with a low credit score are viewed as having higher risks. Unlike traffic tickets that stop affecting your driving record after three to five years, a bad credit score affects your car insurance rates as long as you have it. The only way to stop your poor credit from raising your insurance costs is by submitting your score.
Why You Need a Good Credit Score
A good credit score gives you access to premium credit cards with immense value, though they have a stiff annual fee. Premium credit cards also come with credit score requirements, and most of these cards require a good or excellent credit score of 670 and above.
There’s no doubt that you need a good credit score not only to access premium cards but also to gain more bargaining power, negotiate lower interest rates, have an easy time renting an apartment, and get the best rates on car and home insurance.
