There are three credit bureaus, and each uses different credit score models and ranges. Experian, TransUnion, and Equifax all have different proprietary scores and the ranges of score vary by the bureau and unique algorithm. So just how low can your credit score go and when should you start to worry? Here is some information to broaden your credit score education.
The worst credit score you can have
Equifax has the lowest bottom score of the three credit bureaus. The lowest score there is 280. With TransUnion and Experian, most score algorithms bottom out at 300. So, generally speaking, 300 is about the lowest credit score you could possibly have. However, practically no one has that score. That’s just mathematically as bad it can get.
A “perfect” credit score is 850. However, that’s a relatively exclusive achievement among consumers. You’ll probably find no one with a credit score of 280-300 and it’s a rarity for anyone to hit the other end of the spectrum at the 850 max either. The average score in the US right now is 704. Shooting for 680-725 will allow you to live a comfortable credit life.
Why low credit scores matter
When your score is down in the 500s or low 600s, you’re prone to rejections for new credit, and getting told no on credit line increases. On top of that, you’re more likely to qualify only for subprime credit opportunities. Subprime loosely means that your interest rate on financing will be worse than the prime rate. For credit cards, though, subprime can mean rates of 25-30% APR or more.
You also may be required to provide a larger down payment on a home or for utilities. You may get turned down for a cell phone contract or satellite TV service. Car loan options are usually limited for subprime borrowers and you might be asked for a sizable down payment be stuck with double-digit interest rates. Car, homeowners, and renter insurance will also cost more.
In short, you will have fewer credit and finance opportunities and the ones you get will cost more when you have a lower credit score. Those are good motives to work on your credit score and get it into the range to optimize your opportunities. You don’t need to exhaust yourself shooting for a perfect credit score, but you shouldn’t wallow with a low score either.
How to rebound from a low credit score
The first thing to assess is your credit score right now. Don’t assume you know what it is. Pull reports from all three credit bureaus to see where you’re at and what are the problem areas. Do you have items in collections? Are you rebounding from bankruptcy? Are you over the limit on your credit cards? Have you run late on payments?
The components of your credit score are credit history, length of credit history, the mix of credit, new credit, and utilization. Some of these factors are easier to influence than others. For your length of credit history, that’s a matter of time. Keeping older accounts open helps, as does not opening too many new ones. Occasionally opening new ones, though, boosts one small sector of your score.
The largest factor (roughly 35%) is payment history. Paying on time consistently, especially to creditors that report monthly to the bureaus, will benefit your score and keep it high. The second-biggest segment of your credit score is utilization. It’s calculated as the amount of revolving credit you owe as a percentage of your total revolving credit lines.
The lower the number, the better. Anything over 25% is asking for trouble but this is something you can correct quickly by paying down your balances. Don't let your score get any lower!
If your credit score is lower than it should be, take steps to get it moving in a better direction. One good resource is our Credit Score Keys DVD.