Having a bad credit score isn't the end of the world, as long as you work toward improving it.
While bad credit may make it more difficult to achieve financial milestones, such as being approved for an auto loan or mortgage, there are steps you can take to repair your credit score.
Lenders look closely at your credit report when determining whether you qualify for credit, such as credit cards or loans. One of the factors they consider is your credit score. This three-digit number is calculated by analyzing your financial actions, such as debt and payment history, to predict your ability to repay money lent to you.
If you have a less than stellar credit score, you should take action as soon as possible, so you can work toward good credit and increase your odds of being approved for financial products like credit cards and loans.
Below, CNBC Select explains what credit score range is considered bad, how to improve a bad credit score and how to get a free credit report.
Credit score ranges vary based on the credit scoring model used (FICO versus VantageScore) and the credit bureau (Experian, Equifax and TransUnion) that pulls the score. Below, you can check which credit score range you fall into, using estimates from Experian. Take note that the credit score lenders use varies, though 90% pull your FICO score.
Credit scores are calculated differently depending on the credit scoring model. Here are the key factors FICO and VantageScore consider.
Denials for credit
A bad credit score can reduce your approval chances for credit cards and loans, making it difficult to accomplish many goals. If you want to get out of debt with a balance transfer card, such as the Discover it® Balance Transfer, you'll need good or excellent credit. And if you want to earn rewards or receive luxury travel perks, it'll be near impossible to find a card that accepts bad credit.
Less favorable loan terms
If you're approved for credit, odds are you'll receive less favorable terms, such as high interest rates or annual fees, compared to applicants with good credit. For example, one of CNBC Select's best credit cards for bad credit, the OpenSky® Secured Visa® Credit Card, has a $35 annual fee; though there are no annual fee options.
Limited credit card choices
Bad credit limits which credit cards you can qualify for; the options you have will be primarily secured cards. While a secured card, such as the Discover it® Secured or the Capital One® Secured Mastercard®, can help you rebuild credit, you're required to make a security deposit — typically $200 — in order to receive an equivalent line of credit.
Take note that even if your credit score falls within the bad range, that is not a guarantee you'll be approved for a credit card requiring bad credit. Card issuers look at more factors than just your credit score, including income and monthly housing payments.
If you have bad credit, take some time to review your credit score and identify the cause. Perhaps you've missed payments or carried a balance past your bill's due date. In order to achieve a fair, good or excellent credit score, follow the credit-building tips below.
There are dozens of free credit score services available that offer your free FICO Score or VantageScore. Here are some popular free credit score resources.
Information about the Discover cards and Capital One® Secured Mastercard® has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.