What Is The Lowest Credit Score Possible?

Applicants whose credit scores fall within the lowest or poorest range, usually may not be able to qualify for any mortgages, personal loans, and car loans. If at all they can be considered, they will need to employ the services of a co-signer. 

Would you like to know more about this? We have put everything you need to know about the lowest credit score, why you are likely to experience one, and what to do to improve your credit score. Amazing, right? Keep reading…

What Is The Lowest Credit Score Possible?

The lowest credit score possible is 300. The most frequently used credit-scoring theory is from FICO and VantageScore and it ranges from 300 to 850. This means that while 300 is the lowest credit score possible, the highest credit score possible is 850. 

SEE ALSO: What Credit Score Do You Need To Lease A Car?

What Is The Cause Of A Low Credit Score?

The major factor that affects your credit score is your attitude towards payment. If you have severe misbehavior, a history of late payments, bankruptcy or you frequently default with your regular payment, you are most likely to find yourself at the lowest credit score possible. If you have found yourself at the bottom of the credit score, chances are that you have had at least one of the factors above. 

For you to find yourself at the lowest credit score, it means that there are several undesirable elements at force. These elements are in form of:

1. Minimal credit history

if your credit history is not long enough, it could negatively affect your score. For individuals between the ages of 28 and 23, they are most likely to have a low credit history.

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2. High utilization of credit

The ratio of your credit utilization measures the proportion of the credit you make use of against the available credit to you. When you use too much of your available credit, it lowers your credit score.

3. Collections

If you fail to pay your credit obligation, your original creditor may sell your debt to a debt collector or collection agency. When this happens, the report is taken to the credit bureaus. This can lead to a drop in your credit score. The consequence is that you may have to wait for seven extra years for it to be deleted from your report.

4. Late payment of bills

Failure to pay your bills on time has a way of affecting your credit score. This happens if you allow your bill payment to become 30 days past the due date. At this point, your creditor may report the situation to a major credit bureau which could be Experian, TransUnion, or Equifax. In case you might want to know, your payment history accounts for 35% of your credit score. Therefore, the earlier you settle your bills, the better for you in terms of your credit score.

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5. Bankruptcy

If your credit report says you are bankrupt, it could harm your credit score. Worse still, it can last up to ten years. The length of time it remains on your report is based on whether you have filed for Chapter 13 (up to seven years) or chapter 7 bankruptcy (up to ten years).

Always make sure to keep your ratio of debt to available credit below 30%. That is one way you will keep your credit score from dragging at the lowest level. Moreover, if you are paying responsibly but are in the habit of using up most of your available credits, it is a matter of time, you will find yourself at the bottom of the credit score. 

Why You Should Avoid Having the Lowest Possible Credit Score

With a low credit score, your finances can be adversely affected. Several ways this can happen include:

1. You will be denied a loan

No lender will want to risk it on you when your credit score shows a red alert. If you do not meet the lender’s minimum credit score requirement, it means that you will likely be denied a loan should you apply for one. But this can be reduced if you apply with a co-signer.

SEE ALSO: 15 Ways To Get A Loan With A Bad Credit

2. You will be charged a higher interest rate

If you finally get approval for a loan, the lender may charge you highly to take care of the increased risk associated with lending money to you. As a result, your borrowing cost may be greatly elevated. In the end, the amount of money you have to commit to other projects will be reduced.

3. You will be charged a higher down payment and a higher security deposit

With a low credit score, some lenders might charge you a higher down payment amount if you do not meet the basic scores needed for you to meet up with the requirement. The standard down percentage is 3% for a Federal Housing Administration (FHA) loan. but you will be charged 10%, just because you have the lowest credit score possible. Another negative effect is this: your prospective landlord is likely to charge you a higher security deposit if you want to rent an apartment.

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4. You may pay more fees

In addition to the above, you may have to pay more in fees when you take a loan. One of such fees is origination fees.

Ways You Can Improve Your Credit Score

To increase your chances of qualifying for a loan at a standard interest without any fees charged you, you will need to do the following:

1. Build credit history

If your credit score is on the lowest level possible, then, you need to act fast. You can carry this out by taking out a credit builder loan or secured credit card. This means that you will need to put down a security deposit. Not to worry, you will get the deposit back after repaying the loan or when you cancel the credit card.

On the flip side, you could request someone who has an outstanding credit history and above average credit to help you by adding you as an authorized user on their credit card. Since the length of your credit history accounts for 15% of your credit score, adding you as an authorized user may improve your score.

2. Ensure to pay your bills as and when due

Paying your bills on time will help you to avoid damaging your credit report and your debts going into collections. Early payment of your bills accounts for 35% of your credit score. 

3. Try not to owe a debt

Your debt accounts for 30% of your credit score. If you pay down your debt, your credit utilization ratio will go down, while your score goes up. 

There are two methods you can use to pay down your debt. They are debt snowball or debt avalanche methods. The debt snowball method entails that you put the most money in the direction of your smallest debt, while you make the minimum payment on your remaining debt. 

The idea is that when you focus on the smallest debt, you will be able to pay it off quickly. When you pay off the smallest debt, you can channel the money you were paying on that debt to the card with the next smallest balance.

The avalanche method explains that you can channel the most money in the direction of your highest-interest debt, while you pay off the minimum balance on your remaining debt.

4. Monitor and review your credit reports

This should be done at least once a year. the essence is to be on the lookout for errors. If there is any inaccurate or negative information, it can have a damaging effect on your credit score. You can visit one of the top credit bureaus for the correction of any errors identified.

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Frequently Asked Questions

I have a low credit score; does it matter?

Yes, it does matter. If you have a very low credit score, you may not be eligible for credit cards and loans. Also, you may be asked to pay a higher annual percentage rate (APR) or you may incur additional fees.

If I have a low credit card, does it make me automatically ineligible for a loan?

A low credit score is just one of the factors that will be considered when you apply for a loan. However, you should work on improving your credit score, which elevates your chance of being approved for a loan.

How can I improve my credit score?

It is simple, work on your bad financial habit and it will rub off positively on your credit score over time.

Will working with a credit repair company make me able to fix my low credit score?

Even if you own the company, it will not save the situation. The only way out is to pay your bills on time and pay down your balances.

What determines my credit score?

You might be wondering if it is FICO or other reporting companies. The answer is no because their only duty is to supply the numbers. Meanwhile, your attitude towards your debt provides the number they supply. Moreover, it is the lenders who determine whether a score can pass their lending rule or not. in short, that you cannot get a mortgage from one bank with a 650 score does not mean you cannot get the same from another bank with a lower credit score.

Conclusion

If you have a score that falls within the lowest score range, you are putting yourself at the risk of being denied credit or you may pay higher interest rates and fees. But if you follow the details provided in this article, you will be able to avoid finding yourself on the lowest credit score possible. When you pay your bills and monitor your credit report, it will likely help you to increase your lowest credit score.

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