Your credit score affects various facets of your financial life. This could be getting a loan, the interest rate you pay, or sometimes renting an apartment. When you have a good credit score between 661 and 780, it gives you access to certain benefits.
You won’t only get access to credit products; you’ll also get lower interest rates. Other benefits include being able to get car loans with no interest and credit cards with no interest at first.
On the other hand, having a very poor credit score means dealing with many limitations. However, there are ways to improve your credit score and not to get into the situations such as finding out, “Can I be sued for credit card debt.” Find out more about the lowest credit scores in 2024, their consequences, how to improve them, and much more.
What Is The Lowest Credit Score?
Generally, the credit scoring system ranges from 300 to 850. So the lowest credit score you can ever get is 300.
An individual with a very poor credit score may find it difficult to be eligible for credit cards and loans. However, if they get the opportunity for a loan, they pay a higher annual percentage rate (APR) or extra fees.
These indexes are a way for lenders to know how good or bad you are at repaying your debts. The credit score range and category are listed below:
- 750 to 850 is categorized as an excellent score.
- 700 to 749 is deemed good.
- 650 to 700 is fair.
- Below 650 is a bad credit score.
Can I Have a 0 Credit Score?
It is nearly impossible for an individual to have a score of 0. This is because the calculation begins at 300 (at the lowest) and goes up to 850. However, nobody has ever got that low.
What Is a Low FICO Score?
According to FICO, it’s considered low if it’s below 580. FICO views an individual with FICO scores lower than 580 as a credit risk. They carried out a study that indicates that 61% of people with lower credit scores end up not paying their loans.
With a level of risk like this, it is difficult for them to approve credit cards, car loans, mortgages, and more. Additionally, low FICO scores come with certain disadvantages. This includes having to pay a fee or make a deposit to get a credit card or home utilities.
What Is a Low VantageScore Credit Score?
VantageScore has a similar credit score system to FICO, but the catch is it rates credit scores differently. They place a distinction between low and lowest credit scores.
According to VantageScore, you have a low credit score if it’s between 500 and 600. On the other hand, a credit score below 500 is considered to be on the lowest side.
Typically, people with good credit scores get more credits at better rates. It may be difficult to get approved by VantageScore for a higher-limit, low-interest card if you have a credit score below 600.
Why You Have a Low Credit Score
A low credit score doesn’t just happen out of the blue. There are a handful of reasons why you have a low credit score, and we’ll be discussing them below:
- Late payment of bills: This is one of the major factors that can influence your credit score. When you have a payment due or past the due date, it stays on your credit history, which isn’t good. So ensure you meet up with debts or payments.
- The amount you owe: The amount of credit you owe or are using carries serious weight. Using less than 30% of your credit limits is always a good idea.
- You can take certain steps to minimize your credit usage. Credit scores are easily affected by this factor.
- How often you have applied for credit: This is another factor to consider. Applying for credits can influence your credit score. So it’s best to reduce the number of times you apply for credits.
Consequences Of a Low Credit Score
Having a poor credit history comes with a number of drawbacks. Not only will it make it more difficult to get a loan, but it may also prevent you from getting some services. It can even affect your ability to get a job.
Here are some ways low credit scores can affect you:
Problems With Creditors
It’s been established that low credit scores can lead to negative outcomes. If you have a history of making bad borrowing decisions, you may find it challenging to secure a loan in the future. On the other hand, if you’re given a loan, the interest rate is likely to be quite high.
While most creditors are ready to take on higher risks, there are limits to what a person or institution can take. If you have extremely low credit, they may deny your loan application.
Higher Payment For The Loan
A low credit score can affect your ability to collect a loan. However, if you’re eventually given a loan, the lender will likely charge you a higher interest rate to cover the risk involved. The downside is that it’ll increase your borrowing costs, reducing the amount of cash you can put toward other financial goals.
Aside from higher interest rates, you may pay extra fees, such as origination fees, to collect a loan.
Higher Insurance Premiums
Insurance premiums, such as the cost of auto insurance, are another thing that can be affected by low credit scores. Most insurers ask for a driver’s credit record. This helps them decide how likely it is that the driver will make an insurance claim.
Following Ascent’s data, the average cost of car insurance for people with excellent credit is $1,703. This is $943 lower in price when compared to the overall average insurance premium of $2,646. In essence, drivers with excellent credit scores end up saving more money on their auto insurance bills.
On the other hand, drivers with low credit scores pay more because of their credit histories. The average auto insurance premium for drivers with low credits is around $3,622. It is $1,919 more than what excellent credit drivers would pay.
Difficulty in Career Advancement
It may come as a surprise that employers use credit scores as one of the ways to vet prospective applicants. So, a low credit score can affect your chances of landing a job.
Credit history provides relevant information about a potential employee. Some of this information includes:
- Information on your payment history. This determines if you’re financially responsible and how responsible you’ll be at work. Your employer may feel that you won’t be able to fulfill your work obligations due to your poor credit history.
- Extensive use of credit cards could indicate a sign of a financial problem. This can, in turn, imply that there is a risk of you committing fraud or theft.
Keep in mind that not all employers ask for credit histories. Employers that check, do it for job positions that involve direct access to the company’s information and finances.
Difficulty in Renting Accommodation
Renting accommodations can become a problem if you have a bad credit score. Landlords tend to check if you have the means to cover your payments before handing the keys to you. So they can ask for your credit history as part of the application process.
When they decide to rent an apartment to someone with a bad credit history, they require larger security deposits.
Difficulty Paying For Utilities
A low credit score can influence more than your ability to secure a loan. Utility companies won’t charge you high-interest rates for having bad credit. Nonetheless, you’re likely to get extra costs when you want to create a water, electricity, or gas account.
Keep in mind that utility companies may ask for a guarantee from people with low credit scores. This is usually a letter of guarantee from someone who agrees to cover your payment if you default.
Avoidance Of Credit Cards With Better Bonuses
One of the benefits of a good credit score is access to better credit card incentives. People with great credit scores get the best deals and cash-back incentives on credit products. Invitations to private concerts, early access to ticket sales, and more are some of these benefits.
However, if your credit score is low, you won’t qualify for any of these advantages. So long as you stick around, we’ll be discussing methods to improve your credit rating later on in the article.
The Loans You Can Apply For With The Lowest Credit Score
A low credit score doesn’t mean you won’t have access to loans. In fact, some loans have been made available to people with bad credit scores. However, these loans all come with their own terms and conditions. Failure to comply with these conditions can lead to a further dip in your credit score.
With that said, find below the following loans you can apply for with the lowest credit score:
Secured
A secured loan is a type of loan that requires collateral. They can be collected for personal or business use. Banks will ask for collateral for large loans where your credit score isn’t enough to qualify for an unsecured loan.
In some cases, secured loans can come with lower interest rates if they pose minimal risk to lenders. Nonetheless, some types of secured loans, like bad credit personal loans, can come with high-interest rates.
Co-Signed
Co-signing a loan means you’re legally obligated to repay the loan in full. If the borrower misses repayment, you’ll face similar penalties as the borrower. The lender can demand you pay the entire loan yourself or sue you, and this can affect your credit score.
You’ll receive a separate notice from the lender before signing the agreement. Here are some of the things you should know about co-signing a loan:
- You’ll be asked to guarantee the debt.
- There is a possibility that you may end up paying the entire debt if the borrower defaults. You may even have to cover the late fees or collection costs.
- The creditor can reach out to you for the loan repayment without trying to collect from the borrower.
- It can stain your credit history if there is a problem repaying the loan.
It’s best that you think carefully before signing, as you’ll have to pay if the borrower doesn’t.
Joint Loans
Joint loans permit you to acquire a loan with another person, referred to as a co-borrower. The co-borrower owns some of the loans and shares the responsibility for repayment.
Some common joint loans include mortgages and auto loans. It is also possible to obtain a joint personal loan.
Joint personal loans are the ideal option for people with low incomes or bad credit scores. When you have a co-borrower, you get better terms, such as a reduced annual percentage rate and a higher loan amount.
Here are some reasons why you may take a joint loan:
- When you aren’t eligible for a loan due to your income or credit score.
- If you want to get a lower rate or higher loan amount.
You may not need a joint loan if you’re eligible for a loan with comfortable monthly payment options.
Payday Loans
Payday loans are high-cost loans with short repayment periods. The amount of money given is usually $500 or less, and it’s to be repaid with the borrower’s next paycheck. Payday loans are for people with bad or nonexistent credit. They require identification documents, proof of income, and a bank account.
Remember, paying back a payday loan doesn’t typically improve your credit score. The majority of payday lenders refuse to report early payments to credit bureaus, so the loan can’t build your credit.
However, it doesn’t mean you should default on payments, as your credit score could get damaged. Payday lenders tend to report late payments or defaulters. Sometimes, they can even sell debts to collection agencies, which can spoil your score.
Pawnshop Loans
A pawnshop loan, also known as a collateral loan, is a type of loan you borrow from a pawnshop. It requires that you provide an item such as jewelry, a TV, or any other valuables as collateral.
You should know that the loans are based on the item’s appraised value. The pawnshop has the right to keep your collateral and sell it to recover its losses if you default on the agreed payment.
There are some requirements for a pawnshop loan, and they are as follows:
- Fill out an application
- Provide financial information
- Show proof of employment
Generally, pawnshops perform a credit check before approving a loan. Like payday loans, timely repayment of pawnshop loans won’t help your credit score.
Car Title Loans
Car title loans are mostly considered an example of subprime lending. The reason is that these loans are meant for borrowers with lower incomes or bad credit ratings. Also, car title loans are high-interest rate loans because of the higher risk of default.
The amount you can receive from car title loans is relatively small, between a few hundred and a thousand dollars. Loans are calculated depending on the market value of the car you used as collateral. The loan amount is between 25% and 50% of the car’s value.
How To Improve Even The Lowest Credit Score
There are ways to repair or boost your credit score. As you already know, a better credit score increases your chances of qualifying for loans and securing a lower interest rate.
The following are steps to improve even the lowest credit score:
Strengthen your credit history.
You can improve your credit by acquiring credit-builder loans or secured credit cards. These two options will require that you make a security deposit. Your deposit will be returned to you after repaying your loan or canceling the credit card.
You can also build good credit when someone with a long credit history adds you as an authorized user on their credit card. The length of your credit history accounts for 15% of your credit card score. So, being an authorized user for someone with a good credit score is a good idea.
Paying your bills as of when due.
Payment history is a pretty curial credit score factor. In fact, it often accounts for 35% of the credit score. So making a late payment or having your debt increase can affect your score. This negative information can stay on your record for up to seven years.
Assess your credit reports.
Ensure you track your credit report at least once a year for errors. When you have inaccurate information, it could have a bad effect on your credit score. You can fix an error on your report by reaching out to the credit bureau.