What Is a Bad Credit Score

The market of credit functions when the lenders offer loans based on a FICO score, a number that exists within the range of 300 and 850. The loan giving mantra is simple: Higher the score, the better your credit rating and greater are the chances of getting a good loan amount. Generally, your FICO score is calculated by the reporting agencies that consider a few financial factors such as payment history and other related information.

So, a credit score is a number that is calculated with the help of a predefined formula based on your credit report’s information. This score then facilitates the lenders to analyze quickly as to whether it is fine to take the credit risk with the borrower or not. In short, the higher the score, the better are the chances to take the credit risk, which means that you are less likely to default on paying the loan back.

Although different credit scores have different scales, the score between 500 and 900 is not that problematic.  Any score above 600 means the lenders can trust you. However, if your score is below 400, it is then quite difficult to obtain the desired loan amount. Frankly speaking, you will face an instant rejection from most lenders. It is true that lenders have different ways of deciding which score is really bad, but anything lower than 500 puts the borrower in the worst risk group. This means that in this situation, the lenders are going to think before lending. Herein, usually, your loan will be approved, but it will lay a burden of high interest rates and large paybacks.

Nevertheless, a bad credit score is not the end of your life although it does denote your bad credit position. Irrespective of whether it is a home loan, auto loan, credit card, mortgage, or personal loan; you will be charged extra fees and will also have limited access to money. This is because the lenders have to protect themselves with good cover from those borrowers with a bad credit score. Moreover, they have a belief that a bad credit score revealing a borrower’s history shows a strong possibility of default on repayment of loans as decided.

People with a bad credit score mostly face difficulty to get the loan application approved. In case if the lender approves your application, know that it has been done so by including the unfavorable financing conditions;  wherein the borrower might have  to agree to the clause of a high premium after borrowing. Further, the monthly payments will be huge including the interest rate and that the down-payment might be high too. In short, a bad credit score makes you wastes a lot of money and it also makes it difficult to access money when in need.