When deciding whether you are eligible for credit products like loans and credit cards, lenders carefully review your credit score. Your credit score is one of the things they take into account. A bad credit score may indicate lower creditworthiness as your credit score is an important element that is taken into consideration by the financial institutions to make a decision on your loan or credit card application.
A credit score is a total of your financial management and repayment of all borrowed funds, including credit cards and loans. A person will be considered "new to credit" if they have never applied for a loan or credit card and do not have a credit score. A person will fall under the category of having a good credit history if they have taken out a loan or credit card and have paid their EMIs and credit card bills on time every month. However, failing to pay the loan back on time will impact your credit score by lowering it.
Let us understand more about bad credit scores in detail now that we have discussed about the definition of a credit score.
Bad Credit Score – Meaning
Your creditworthiness is assessed using a numerical score that is calculated based on your financial activities. Typically, it ranges from 300 to 900, with 300 representing the lowest value and 900 representing the highest. Always strive to keep your credit score around 750 or higher. A credit score of 750 or higher is regarded as desirable by the majority of banks and NBFCs. Although, different credit bureaus have different algorithms for credit score calculation. Your credit score may vary from credit bureau to credit bureau.
But what is the general credit score range in India? Let’s take a look at the below table to understand the general credit scoring range and what score is usually categorized as a bad credit score:
Credit Score Range Meaning
Credit Score Range
Excellent Credit Score
Good Credit Score
Average Credit Score
Bad Credit Score
So, if your credit score is hovering around 300 to 500, you have a bad credit score and you need to work on improving your credit score to get loans at competitive interest rates.
Let’s move on to how you can work on your bad credit score to improve it. For that, we need to understand the factors that may be impacting your credit score.
Factors Resulting in a Bad Credit ScoreYou are more likely to be approved for credit and get offered better interest rates and conditions if you do not have a bad credit score. Low credit scores might make it challenging to qualify for credit at all, let alone getting credit that is affordable.
Here are a few factors that may result in a bad credit score:
Maintaining a good credit score has numerous benefits, and hence, you should work on improving your credit score. A credit report is your financial report card, ignoring a bad credit score may land you in troubles in future.
But what can you do to improve a bad credit score?
Tips to Improve a Bad Credit Score
Because every person's situation is different, there isn't a straightforward solution to this issue. However, in most cases, if your credit score is bad but you start to make improvements, you will start to see changes gradually.
Here are some suggestions for improving a bad credit score:
Knowing your credit report and credit score is crucial because having a bad credit score can seriously impact your personal finances. You can manage your credit score and take advantage of more financial opportunities as you improve your credit score by taking the time to learn how credit scores function and what causes a bad credit score.
FAQs Related to Bad Credit Score
A credit score of 550 may be considered bad by a few lenders. You may not be eligible for loans at affordable interest rates if you have a credit score of 550. You may not also get the desired credit limit on your credit card with a score of 550.
A bad credit score may impact your personal life. To recover from a bad credit score, adopt healthy financial practices such as paying down your debt on time. You should also maintain a credit utilisation ratio of below or equal to 30% to help improve your bad credit score.
It depends. The time taken to improve a bad credit score depends on your financial activities. Also, remember that each lender or bank have their own time to update your repayment status to the credit bureaus. Hence, it may take some time for your credit score to update if you are already working on the bad score to improve it.
The answer is one. You can improve your bad credit score with just 1 credit card. It is not about having multiple credit cards. It is about how well you manage the credit card payments. Ensure you make timely repayments on your credit card to help improve it.