Bad credit score

How to Run Your Day to Day Finance with a Bad Credit Score - The Full Survival Guide

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Last updated on October 28, 2020

When you’re trying to make financial moves in your life, whether it’s opening a new line of credit or buying a home, your credit score matters. And if you have a bad credit score or a nonexistent credit history, you can run into some serious roadblocks. You may be unable to get new credit for the things you want to purchase, and poor credit history can even affect your ability to get a new job or rent an apartment.

So whether your credit score is bad because of previous poor financial decisions, bankruptcy due to medical debt, or simply because you haven’t had time to establish credit, we’re here to help you figure out how to deal. Here’s what you need to know about surviving with a bad credit score.

Check your credit score online for free with our recommended services Credit Sesame and Credit Karma

What is a Bad Credit Score?

First off, you should know that not all credit scoring systems are the same, so you may see different score ranges for different scoring models. Right now, though, the two most common scoring systems–FICO and VantageScore–operate on a scale of 300 to 850.

The next thing you should know is that credit scores are somewhat relative. Different lenders consider different criteria when they’re deciding whether or not to extend credit to you. One lender might gladly give you a car loan if your credit score is 600, while another would consider that too low for lending. And as the average FICO score rises for American consumers, those at the bottom of the spectrum may find it increasingly difficult to get access to credit.

With all this said, FICO itself does divide scores into ranges. It considers a “poor” credit score to be anything in the 300 to 569 range, and anything in the 570 to 669 range to be “fair.” If your credit score falls into this range, you definitely need to work on improving it to put yourself in a financial position to borrow when you need to. And even if you aren’t planning to borrow, taking steps to improve your credit score can improve your financial life in general, as well.

How to Check Credit Score

Every American is entitled to check their credit history once per year from each of the three credit bureaus for free. This, however, does not come with the ability to see your numerical credit score. It’s helpful, though, for finding out if your credit information is being reported accurately and to catch any fraudulent activity on your accounts. You can get this free credit report at, which is the official site for your annual free credit report.

But how do you go about getting your actual credit score? You have a few options here, some of which are also free:

  • Look for it if you’re denied credit. If you apply for credit and are denied, the creditor is required to give you an “adverse action” notice. This notice must include the credit score that the creditor used to make their decision. Applying for credit you know you’re unqualified for just to get this score is not a good idea. But if you happen to be denied credit, you can always check out the adverse action notice to see the credit score that the creditor saw.
  • Check with your credit card company. If you happen to have a credit card, even with your bad credit, your credit card company may provide you with a monthly copy of your FICO or Vantage Score.
  • Use a free reporting service. Several online services exist that give you a free credit score. Credit Sesame and Credit Karma are two of the best options, though the scores they offer are simply a close approximation of your official credit score. Free credit reporting services can be good if you have bad credit. You don’t have to pay for them, but you can see your score trending up as you make good financial decisions. Once you get closer to applying for major credit, though, like a mortgage, you may want to pay for a more accurate version of your credit score.
  • Pay for your score. Finally, if you want an official credit score, you can pay for it. FICO and each credit reporting bureau all have paid score options. Some let you have your score monthly, while others are a one-time deal. These options can be great if you need a look at the credit score potential creditors are most likely to see.

Read:  How to Get Your Credit Score for Free

Can You Live Without a Credit Score?

In short, yes, you can live without credit. But only if you want to or can pay for everything in cash, including homes and cars.

As long as your lack of credit score is based on no credit history (instead of a negative credit history), it may not even affect your ability to get things like a job, an apartment, or a cell phone plan. Just be prepared to pay extra cash up front for things like a cell phone if you have no credit.

Living without credit is definitely possible, and some financial gurus like Dave Ramsey argue for living a completely credit-free life whenever possible. But even hardcore Ramsey followers may have trouble ever buying a home without taking out a mortgage. And if you want to take out a mortgage, having some history with responsibly managing credit will be important.

What Affects Credit Score?

Did you know that you actually have many, many credit scores? It’s true! Each credit scoring system–FICO and VantageScore being the two most prominent–has different versions. So, for instance, FICO has a version specifically for auto lenders versus home lenders. Each version assesses potential risk factors in slightly different ways. That way, lenders can get an idea of how you’re likely to handle particular types of credit.

With that said, though, most credit scoring models follow a similar mix of factors and weight of those factors. While the actual algorithms themselves are proprietary, heavily-guarded secrets, we do know the approximate breakdown of a credit score:

  • 35% payment history
  • 30% credit utilization
  • 10% credit inquiries
  • 15% length of credit history
  • 10% types of credit used

Let’s break each of those components down so we can see what, exactly, affects a credit score.

Payment History

Whether or not you make on-time payments to your creditors is absolutely the most important part of your credit score. A late payment–especially one that goes more than thirty days past due–will tank your credit score more quickly than just about anything else. Conversely, consistently making on-time payments to your creditors will increase your credit score over time.

Credit Utilization

This part of your credit score is measured as a ratio of the amount of debt you have versus the amount of credit you have available on your revolving accounts. This doesn’t typically account for credit you’ve taken out on installment loans, such as car loans or installment personal loans.

But if you have a high credit card balance relative to your available credit, your credit score will go down. One of the fastest ways for many people to improve their credit scores is actually to pay down or pay off revolving debts. You can improve your credit utilization ratio pretty quickly. And since it’s such a big part of your credit score, this can have a quick positive effect.

Credit Inquiries

Applying for credit too often can harm your credit history because it tells potential lenders you might soon be in over your head in debt. With that said, most credit scoring models allow for shopping around for particular types of loans, especially car loans and mortgages. They’ll treat all inquiries for a mortgage, for instance, as a single credit inquiry if you fill out all the applications within 30 to 45 days, depending on the scoring model.

Length of Credit History

Creditors like to see not only that you have good credit habits but also that you’ve had them for a while. So it’s impossible to have a perfect credit score within just a couple of years of opening your first credit account. The longer you have managed credit, the bigger boost this factor will give to your credit score.

Types of Credit Used

Finally, having a mix of different types of credit will give your score a small boost. So if you only have student loans, for instance, opening an installment account like a credit card could help boost your credit over time.

How to Get Mobile Phone with Bad Credit History

Since most mobile carriers check your credit score when you apply to open a new plan, getting a cell phone when you have a bad credit history can be tough. But it’s not impossible.

The first time I opened my own cell phone plan as a young college student, my dad had to co-sign for the plan. It was a cheap flip-phone plan that I could easily afford with my part-time job. But since I had no credit history, I couldn’t get the plan without a co-signer. So this is one fairly simple way to get a plan of your own, as long as you know someone with good credit history who will sign for you. You can then eventually move the plan into your own name.

What if you can’t find or don’t want to ask a co-signer? Here are some other ways to get a mobile phone with bad credit history:

  • Pay a security deposit. As we noted earlier, you can live without credit as long as you’re willing to pay more cash up front. If you have a bad credit history, you may need to pay a deposit to the mobile phone company. Typically they’ll pay it back as long as you make payments consistently for a year. But they can draw on the deposit if you miss a payment.
  • Join a family plan. If you know someone willing to let you tag onto their family plan, you can bypass the credit check altogether. Typically only the main account holder for a family or friend plan needs to go through a credit check. Going on someone’s family plan can also be a great way to save a ton of money on your cell phone bill, even if you make payments on your actual phone.
  • Check out prepaid plans. You can typically get onto a prepaid plan without any credit check since you’re paying up front. This can be the cheapest option in the long run, as prepaid plans can be even cheaper than getting into a family plan. With that said, it’s the most expensive option up front, since you’ll have to buy your phone outright.

How to Get a Loan with Bad Credit

Getting a loan can actually be one of the best ways to increase your credit score. If you take out a small loan and pay it off consistently, your credit score can go up because of the good payment history. But this is a bit of a catch-22 since getting a loan with bad credit can be difficult in the first place.

So if you’re asking, “How can I borrow money with bad credit?” you do have some options.

One option is to find a lender that specifically targets people with bad credit. These loans will always come with a higher-than-average interest rate. So be sure not to take out more than you absolutely need. And do make sure that the lender will report your on-time payments to all three credit bureaus. Some of these lenders will give you a small amount of emergency money at a high-interest rate even if you have a low credit score. You are strongly advised to check out some of the leading loans aggregation services like Credible, Prosper, Lendvious, SoFi and Quicken Loans. Loans aggregation services give you the opportunity to compare hundreds of loans offers.

Another option is to ask for someone to co-sign on your loan. Again, you have to find someone with a decent credit score to co-sign. And they are effectively taking responsibility for the loan, which means that any missed payments on your part will negatively affect their credit score. But if you’re willing to find a co-signer, you’re likely to get a much better deal on a loan.

Finally, you can look at secured loans. If you can secure a personal loan with an asset, you’ll get more favorable terms, even if you have bad credit. It’s not always possible to do this, but if you find a lender who will deal with you and let you secure a loan, you may be able to get a personal loan even with a low credit score.

How to Get a Car with Bad Credit

Frankly, the best way to get a car with bad credit is to buy it outright. If you’re in a position where you’re working on increasing your credit score, the last thing you want is a car payment hanging over your head and making your financial life more difficult.

But what if you really need a car now and don’t have money in savings to pay cash? In this case, you’ll need to figure out how to get a car loan with a low credit score. The options here are similar to those above: find the right lender or get a co-signer.

In this case, though, the right lender could be a community bank or credit union. These smaller entities are often more willing to take personal circumstances into account. So if you can show that your low credit score is due to circumstances outside of your control and that you’re taking steps to improve your situation, you may be able to get a decent car loan.

That said, if you can’t find a community bank or credit union willing to give you a car loan, you may need to work with a lender that specializes in car loans for people with bad credit. In this case, you’ll get the best deal if you can put a good-sized down payment on your vehicle and avoid financing it over a long period of time.

Finally, you’ll get a better deal on a car loan if you find a co-signer with good credit. (Are you noticing a theme here? Co-signers can be super helpful when you have a bad credit score!)

And what about leasing? Can you lease a car with bad credit? Leasing a car with bad credit isn’t impossible, but it can be tough. You’ll end up paying more in interest over the length of the lease, and you’ll likely need to have more cash as a deposit when you sign the lease. One option, though, is to check out lease transfer companies, which can offer more favorable terms if they can match you up with someone trying to get out of an existing lease.

How to Get a Credit Card with Bad Credit

Getting a standard credit card with bad credit is also nearly impossible. Creditors just won’t trust you with a revolving credit account until you prove that you can handle money responsibly. However, getting something that looks to credit reporting bureaus like a credit card is super simple. And, in fact, this move can be one of the best options for increasing your credit score.

Your best bet here is to go for a secured credit card. This is a card with a revolving line of credit, just like a regular credit card, but you have to pay a deposit in order to get it. Sometimes your line of credit is exactly equal to your deposit, and sometimes it’s a bit higher. So a $250 deposit might get you a $250 line of credit or a $500 line of credit, depending on the creditor.

If you miss a payment on your secured credit card, the credit card company will use your deposit to cover it. But if you don’t miss any payments, many creditors will automatically convert your secured card into a regular, unsecured credit card.

The great part about a secured credit card is that if you pay it off in full each month, it improves two aspects of your credit report: your payment history and your debt-to-credit ratio. And this can be a very good thing for improving your score over time! Check out our list of the best secured credit cards.

You might also look into getting a digital banking account. We like to call those accounts “slim” banking account and offer the basic banking services like checking accounts, savings accounts, and prepaid debit cards. Digital banking services market in one of the fastest growing financial services and in the future it is expected that those services would have a solid market share. Check out Mango Money, Chime, and others. Compare and find the best for you.

One other way to get a credit card with bad credit is to become an authorized user on someone else’s credit card account. This is known as credit card piggybacking. Even if you never actually use the card you’re authorized for, you can benefit from the account holder’s good credit history. Just beware: if you overspend on the card, you’ll harm both of your scores. And if the account holder doesn’t use the card well, your score will suffer even more, even if you didn’t do the spending.

How to Rent an Apartment with Bad Credit

Depending on what is dragging down your credit score, you might have a hard time getting approved for an apartment lease with a bad credit score. If you have charged off accounts, repossessions, or constant missed payments, landlords are less likely to trust you to make your rent payments on time. And that can make it difficult to get approved to rent an apartment at all.

With that said, it’s not impossible to rent an apartment if you have a bad credit history. Here are a few strategies to try:

  • Opt for lower rent payment. If you go with a cheaper apartment where the rent will be a smaller portion of your income, your credit history may be easier to overlook.
  • Pay a bigger deposit or rent up front. Once again here, putting more cash on the table up front can make you a more attractive renter, even with a bad credit history. Paying three or four months’ worth of rent upfront can overcome a bad credit history with many landlords.
  • Be pickier about landlords. Larger apartment complexes may not bend the rules much for their renters. If they require a certain credit score, you may be out of luck even with more cash on hand. Smaller complexes and individual landlords may negotiate with you more, especially if you can explain that your bad credit score is due to a rough patch financially.
  • Get a co-signer. Even if you aren’t getting more credit, having a co-signer can be helpful here. Again, this person needs a solid credit history and should understand that they’re signing up to take on the tab of your monthly rent if you miss payments. But a good co-signer can help you get approved for a lease more easily.

Once you get approved for an apartment with bad credit, try to have your on-time rent payments reported to the credit bureaus. This article details how you can have your rent reported to the bureaus, which can help your credit score.

How to Buy a House with Bad Credit

Wondering how to get a mortgage with bad credit? This is one of the trickier parts of our guide. Buying a home with bad credit can be tough because this is likely to be one of the largest loans you ever take out in your life. But it’s not impossible to buy a house, even if you have a low credit score. Here are some options to consider:

  • Look at FHA loans. These are the best loans to go for if you have a bad credit score. They can approve credit scores all the way down to 500, which is pretty low. If your score is lower than that, you may need to take some time to improve it before you’ll be able to get a mortgage.
  • Save up a larger down payment. You’ll need to save up a bigger down payment for your loan if you have a low credit score. This can help you get a better deal on your mortgage interest, which can save you literally tens of thousands of dollars over the life of your mortgage loan.
  • Choose a cheaper home. As with choosing an apartment, choosing a home with a lower value can help you out here. If your mortgage payments take a smaller bite out of your income, you can get away with a lower credit score. Plus, whatever money you do have saved for a down payment will stretch further, which is always a good thing.
  • Compare hundreds of mortgage offers with mortgage aggregators. Like personal loans, there are also mortgage aggregators. Those companies have developed sophisticated algorithms that will tailor the best mortgage offers to your situation. You can start with Credible, Lendvious or Lenda.

Buying a home with poor credit isn’t impossible, but it will cost you a lot more money in the long run. A lower credit score can mean that you pay significantly higher interest, which can quickly add up. So if you have a truly poor credit score, you may be better off renting for a while as you work to bring up your credit score.

Can I Open a Bank Account with Bad Credit?

Most banks don’t pull your actual credit score when they see if you’re ready to open a bank account, though some do. However, if long-term bad financial habits have caused your low credit score, you may also have a bad score in the report banks do pull. Banks pull reports from ChexSystems. Instead of the credit score information we talked about above, this report looks at things like:

  • Bounced checks
  • Overdrafts on your account
  • How many checks you’ve ordered
  • Unpaid negative balances
  • The number of bank account inquiries you’ve had
  • Instances of check fraud and identity theft or fraud on your account
  • Excessive withdrawals

If you do have a bad ChexSystems report, you may need to open an account with a bank that doesn’t check this report, or open a second chance account that’s made for consumers who have a bad credit or banking history. These accounts may come with required monthly fees or other additional fees, or they may have a lower rate of return. But they’re likely to be cheaper than prepaid debit cards, so they’re definitely a good option. We have already mentioned the digital banking accounts that might be a perfect solution, in this case, Check out Mango Money, Chime, and others. Compare their terms and conditions and find the best for you.

The key here is to do your research ahead of time. Look into which banks are most likely to approve your application before you start applying. That way you don’t waste your time, and you don’t wind up harming your ChexSystems score by applying for too many bank accounts at once.

How to Refinance with Bad Credit

Refinancing debts can be a great way to lower your interest rates and consolidate your payments, which can make it easier to ultimately get out of debt. Unfortunately, refinancing when you have bad credit is difficult, to say the least. You’re already looking at getting loans at a much higher interest rate, and getting unsecured loans for refinancing is rough.

Your best option is probably to look at debt consolidation loans from companies particularly geared towards consumers with poor to fair credit. Most lenders will give their minimum credit score somewhere on their website. Finding a lender with a lower minimum credit score gives you a better chance of qualifying for their consolidation loans.

You could also look at nonprofit debt counseling and consolidation organizations. Be wary here, though, as many for-profit debt services exist, and they are typically not worth the money you wind up paying them. But nonprofits with a verified 501(c)(3) status may offer credit counseling or even lower interest rate debt consolidation loans to some consumers.

Finally, you can fall back on our old friend–the co-signer. As with all other types of debt, getting a co-signer to take responsibility for you on your loan can be helpful. In fact, a co-signer might make the difference between getting approved for a refinancing loan and not being approved.

Be wary of using a refinancing loan to pay off your debts, only to then go into more debt. This is especially dangerous with credit cards, where it’s easy to quickly run up your debt again. Then you’ll be in worse shape than when you started. But if you use a refinance loan well, you may be able to lower your interest rates and your payments so that you can get out of debt–and get into a better credit score–more quickly.

How to Improve Credit Score

Now that you’ve seen all the potential issues with having a bad credit score, are you ready to learn how to fix bad credit? It’s not impossible or really even all that difficult. It just takes time and diligence about your overall financial life. While our steps above can help you survive a bad credit score, these next steps can help you actually improve your credit score so that you can thrive financially.

  • Get on a budget. Sometimes bad credit scores are due to circumstances out of your control, such as high medical debt. But often, they’re just due to poor financial management over time. And if this is the case, you need to get on and stick to a budget.
  • Make all your payments on time. As you’re working through your budget and cash flow, do anything you can to make all of your minimum payments on time, every time. This simple step can help stop the bleeding on your credit score and increase it over time.
  • Pull your credit report. Next, you’ll want to pull your full credit report from each of the three credit reporting bureaus. This gives you a solid idea of what you’re dealing with and also lets you take the next step.
  • Correct mistakes on your report. Now check through each of your credit reports to find any mistakes. These can be small things like having an out-of-date address. Or they could be negative marks on your score, such as a misreported late payment or an account that you paid in full listed as charged off. Follow this guide to correct these errors.
  • Pay down revolving debts. This is usually the quickest way to increase your credit score, especially if you have maxed out one or more credit cards or other revolving debts. Paying these down even a little can boost your score within weeks.
  • Keep up your good habits. Now that you’re forming habits of paying all your payments on time and paying down your revolving debts, keep up the good work. Over time, these habits–along with a gradually longer average age of your credit accounts–will increase your credit score.

How to Your Build Credit Score from Bad Credit

Building your credit score from bad credit to great isn’t impossible, though it might seem like you’re digging yourself out of a hole of your own making. But it can be done. Using this guide, you can survive your financial life with a low credit score. And then you can take steps to actively improve your score.

It won’t happen overnight, especially if you have a very low score today. But over time, negative events like bankruptcies and late payments will have less and less impact. And as you build good financial habits, your score will eventually creep upwards.

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