Is 550 a Bad Credit Score?
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Like it or not, credit rules the world. You need it to rent or buy a home, buy a car, and about a thousand other things. But if you have bad credit, there are helpful options. We are a credit repair company and can help fix that ugly score.
The first step is to know what your credit score is and what it means for you. Understanding your score lets you know not only where you stand, but also gives you a better idea of what needs to change and how you can implement those changes.
What Are the Ranges for Credit Scores?
Before we can really understand what constitutes a credit score, we have to understand the five different tiers of credit: poor, fair, good, very good, and exceptional. These ranges are used by all three national credit bureaus as well as FICO.
The three national credit bureaus that are in the United States are Equifax, Experian, and TransUnion. The three unions (and FICO) share similarities, but there can be minor differences between them that can result in a slightly different score. For the purpose of this piece, we will go by FICO standards.
At the very top is a score that is considered exceptional. This is in the range of 800 to 850 and is as good as it gets. This means that you will qualify for anything and get the best rates because of it. This is what we all shoot for with our score.
But getting that exceptional score is not easy. There can’t be late payments, collections, your debt usage has to be under 30%, and there will be other factors. Cultivating a credit history like this requires a near-perfect history to achieve.
The next tier after exceptional is Very Good, which is a range of 740 to 799. If you have a Very Good rating, you will be able to qualify for everything and will get very good at great rates while doing so. Like an Exceptional rating, you need to be careful about your credit history to get this score. Keep your track record clean and you can wind up in the Very Good category.
After that is the Good category of credit scores. To land in this tier, you would need a score that is in the 670 to 739 range. A good score is looked at positively in the eyes of creditors, but it is also not spotless: you could have a higher credit usage or a missed payment, but it can’t be too many or you’ll tip the scales downward.
Second, to last is the Fair tier. This is a credit score in the range of 580 to 669 and it is not good, but it isn’t necessarily bad, either. With this kind of score, you can qualify for most things, but your interest rates may be substantially higher than if you were in one of the other tiers.
Which brings us to…
Is 550 a Bad Credit Score?
Plain and simple, 550 is a bad credit score on the standard scale of 300 to 850. Many creditors use the Good tier as the benchmark and a “bad” score is about 150 points shy of that. A 550 credit score will make things very difficult when it comes to many different things.
With a 550 credit score, your loan options will be severely limited. If you can qualify for a loan, the costs will be much higher than they would in a better credit range. Having this low of a score will make getting any line of credit that much more difficult, though there will be secured credit cards that can help you get your score up.
Before we can understand how to remedy a bad credit situation, it is important to know how those scores get to that low of a level.
Serious Delinquency and Defaulting
The first is usually through things such as default and delinquency. Serious delinquency – something with 90 days or more of being late – can really have a negative impact on your credit score.
Defaulting on a loan can also play a major role in a credit score this low. If you haven’t hit the stage of defaulting yet, it is imperative that you take the steps to prevent that from happening. Yes, late payments and serious delinquencies are a big deal, but they can be remedied.
If you have the ability, try to make up those payments. This can be achieved through a number of measures and even calling your creditor can be helpful. Don’t just let something like this go as it can have a major impact on your credit.
Foreclosure and/or Repossession
Another major mark against your credit is if you have a home that has been foreclosed on or property that has been repossessed. Both of these things happen after a number of missed payments as well as collections accounts.
To illustrate how serious repossession and foreclosure is, it can take your score from a 780 all the way down into the 620 to 640 range. That is a massive fall off and can impact your credit in a major way for a long time to come.
Worst of all is that there is no quick fix for repossession and foreclosure. These won’t fall off of your credit report for seven years, so make sure that you have explored all options before allowing these to happen.
This is the absolute worst thing that can happen to a credit score. If you thought foreclosure or repossession was bad, consider this: if you have a score in the 700s, bankruptcy can take it down into the mid-500s. Not only that, but it can also take up to a decade to fully recover.
If you are in a position where bankruptcy is the only option, you will have to be patient and diligent going forward. Opening a secured credit card can begin the process of healing your credit, but it will take time.
How to Remedy a 550 Credit Score
If you have a 550 credit score, it may seem like the end of the world but it is not. Granted, it will take some hard work going forward as well as more discipline. Still, your credit score can definitely be brought back from the dead.
There are some important factors to take into consideration that can not only get your credit back where it needs to be, but do so in a relatively short time period. The first is simple but effective: pay your bills on time.
Life changes for all of us. Perhaps now you make more money than you did a few years ago and you are able to pay your bills in a more reliable manner. Make certain to pay them each month and you will notice positive trends on your credit report. This is the beginning of a positive credit score.
Should you have major creditors, call them. Ignoring the problem is the absolute worst thing that you can do and it won’t go away. Call your creditors to discuss payment options. Most will be flexible because they want something from you and it is better than getting nothing from you.
Calling your creditors can mean a more reasonable monthly rate. If your current monthly rate is too high, they may be able to change the terms to make it easier to pay each month. It may take longer to pay off your loan, but at least you will be paying it.
When it comes to your credit utilization, this is another major factor as it accounts for 30% of your FICO score. Credit bureaus prefer that your credit utilization is under 30% of your total credit balance. So, if you have a $10,000 credit limit across multiple credit cards, you should have a balance of under $3,000 across those cards.
Ideally, you will be able to pay your balance off to zero each month, but most of us do not live in ideal situations. If you can’t do this, try paying more than the minimum balance to save yourself on potential interest fees down the line. Every little bit can matter in the long run and can save you substantially.
Your credit score is a complicated, confusing thing at times, but it can be oh so simple. Make certain that you pay your bills on time, that your credit usage is relatively low, and that you don’t have any major negative marks against your credit.
Otherwise, you could end up in the 550s and find yourself struggling to get financing for a home or car, qualify for a major credit card, or even find an apartment to rent. The impacts of your credit score are far-reaching and you will find as you grow older that maintaining a good credit score is of the utmost importance.
Even if you are in the 550s, there is hope. But it will take time and patience and a positive change to do so.
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