A credit score is an important measure of financial health. It signifies your trustworthiness to financial institutions and can help determine how easy, or how expensive, it is for you to buy a home or a car. You already know a perfect credit score is hard to come by. But what about the worst credit score? Yet you'd be surprised by what it takes to earn a truly worst credit score.
One of the biggest hurdles in getting a loan approval is your credit score. Often the lender pulling(i.e. requesting and reviewing) your credit score from a major credit bureau is the first step in any lending process.
Naturally, this leads to the question… “Is my credit score good enough?”
There is no such thing as a zero credit score. That's because most major credit score models, like CIBIL and other credit rating agencies, use models with a 300 to 900 range. Theoretically, 300 would be the lowest score you could get, although that would be as "unusual" as receiving an 850.The worst score a person could possibly have would depend on the system being used. "The original CIBIL score used a scale of 300 to 900.
It's important to "ask your lender what score they use and what the scale is. That's the only way to know what the worst possible score would be for a particular lending situation.
Race to the Bottom
So what does it take to earn the worst credit score ever? Do exactly the opposite of what it takes to get a good credit score, and you'll get that 250 or 300.
Credit agencies use five factors to crunch your credit scores: payment history, or your track record of making payments on time; mix of accounts, or how many different accounts you have open; your debt, especially in relation to your credit card(s)' available limits, known as your credit utilization ratio; how long your accounts have been open; and new credit, i.e., how often you shop for credit. Here's how to fail in each category.
Payment History: Make all your payments late, or better yet, don't make them at all. Let an account go to collections, and forget about it entirely. Ignore the collectors' attempts to get in touch with you by mail or telephone.
Mix of Accounts: Leave the mortgages and automobile loans to your friends who want a good mix of credit accounts. Right now, your focus is only on one thing: credit cards, and plenty of them.
Debt: Go shopping until you max out every single credit card. Buy everything. Who cares about the available credit limit?
Account History: Make sure every credit card has been opened recently, ideally in the past 6 months. Close anything older. Using any account you've managed responsibly is out of the question.
New Credit: With all your cards maxed out, the only thing left to do is apply for another. And another after that. Keep racking up those hard inquiries.
How credit scoring works
Many creditors use the popular CIBIL scoring system, which combines financial data collected from major credit bureaus Equifax, Experian and TransUnion. Those credit bureaus also have their own scoring system. Your credit score is tied directly to the financial decisions you make, such as paying your loans or credit-card due on time.
Each scoring system ranges from 300, the lowest possible score, to 850, the highest possible score. A score in the range of 750 to 850 is considered "excellent”.
A score ranging from 700 to 749 is considered "good"; a score from 650 to 700 is "fair"; and a score ranging from 300 to 649 is "worst."
If you're trying to build credit from scratch, there are a few ways to get started. The first, and most common, is to open a credit card. That can help you establish an official line of credit and begin building a good credit history, which is reported to the three credit bureaus.
If you're just getting started, you may not be allowed to open a new card on your own, in which case you could, with permission, use someone else's. This process is called credit card "piggybacking" and involves becoming an authorized user on someone else's card: The primary cardholder agrees to add you as a secondary user so you can reap the benefits of good credit.
The card's payment history then becomes part of your own credit report. "So, even if you were 19 years old and couldn't qualify for credit on your own, you could have a credit card."
This method is useful if your goal is to gain experience using plastic, or if you lack enough credit history for a specific goal. It isn't intended to dispel or rehabilitate poor credit.
Let’s see if we can relieve some of your stress.
Most credit scoring models range from 300 to 850.
Here’s a little stress relief right off the bat – it’s really, really hard to hit the bottom (i.e. 300) on this one. It’s kind of like the ACT or SAT; you get some points just for getting your name right. In fact, you are more likely to have no credit score at all, usually because you have no credit history, than to have a 300 credit score.
Relief… you’re probably not at the bottom of the barrel. Just slightly above that mark and you are usually in the hunt for getting a loan.
Credit cards are usually the easiest “loans” to qualify for regardless of your credit score. However, like all credit lending, the worse your credit score is, the higher your interest rate will be on your card(s).
With credit cards, you can probably get a reasonable interest rate and credit limit with a credit score above 650. Below 650 and you will need to look into a secured credit card, meaning it is “secured” by your cash – sort of like a debit card.
If you’re looking for a credit card to give you rewards or cash back, then you need to get that credit score above 700, preferably 725+.
Qualifying for a auto loan with a low credit score is not too difficult, but it will be more challenging than a credit card.
Like credit cards, you can probably find a way to finance a car with almost any credit score. The trade off will be a higher interest rate, higher monthly payments, and potentially a hefty down payment up front.
In most cases, even with a low 500 credit score, you can come away with a manageable car loan. However, the interest rate will probably be above 10 percent and your down payment may be higher than you can afford without help from friends and family.
Wondering about the incredible deals you hear on the TV commercials? The zero down, 0 percent interest offers – those typically require a credit score above 700.
TransUnion didn’t identify common factors among consumers with a 300 credit score, but they pointed out some characteristics of subprime credit files: “Generally speaking people with poor credit (300-600 score) usually make late payments, only contribute the minimum amount, carry high percentage balances on multiple cards and apply for multiple lines of credit within a short period of time.
So if you want to avoid joining the population of people with worst credit (or you want to get out of the club), it’s smart to make credit card and loan payments on time, pay down your debts, use a very small portion of your credit card limits and apply for credit sparingly. It’s also a good idea to regularly review your credit reports for accuracy, as errors may be hurting your credit.
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