What is a Credit Score, and Why is it so Important?
In the simplest terms possible, a credit score is essentially just a 3-digit number ranging from 300 to 900 that is calculated to show how ‘credit worthy’ you are. The higher the score, the better. This score becomes increasingly more critical as you get older and start thinking about making large purchases such as homes, cars, renovations, etc. In addition, to acquire a large mortgage, the bank or lender must have a valid reason to trust that you plan on paying the money back, especially if it’s a significant amount.
The logic behind this is that, in general, people who handled their credit poorly in the past will continue to handle it poorly in the future. In contrast, someone diligent with paying down their debt will continue to be diligent in the future. Banks and lenders would much prefer to lend money to these kinds of people, which is why they want proof of your credit score.
How is my Credit Score Calculated?
A credit score is generally calculated by using five key criteria:
- First, 35% of your credit score (the largest chunk) is made up of your payment history. Your payment history considers how good you have been with paying off any debt or credit on time.
- 30% of your credit score comprises credit utilization and the amount you owe. This criterion considers how much current debt you have and whether or not you would be able to pay it off that instant if you had to. This criterion also takes into consideration your credit limits and whether or not you are maximizing them.
- 15% of your credit score is made up of the length of your credit history. The longer you have maintained credit, the more data there is to track, leading to an increased credit score.
- 10% of your credit score is based on inquiries or (new credit). Anytime you apply for new credit, it reflects poorly on your credit score because there is an assumption made that you are in a poor financial position and need the extra cash on hand.
- 5% being the final piece of your credit score, reflects public records. This chunk of your score considers any previous bankruptcies or other issues. Any of these issues would decrease your score.
Don’t have a great credit score but need cash quickly?
If you don’t necessarily have the best credit score in the world and you want a quick loan without going through the process of improving it (which you can do – and we will further discuss in this article), you can check out PersonalLoans.com
Most borrowers can get approved in less than a day and see money in their bank account within a week. You can take out a loan for nearly any reason, but the most popular loan type is for debt consolidation, paying off high-interest credit card loans.
Click to check your rate on a personal loan up to $35,000 – It won’t affect your credit score.
A 600 credit score isn’t going to lock you out of the money you need, but it will affect your life in ways you don’t realize
If you’re checking your credit score, it’s probably because you’re considering applying for a loan or wondering why your credit card rates are so high.
But that FICO score affects more than the rates you get or whether you get approved for a loan.
You might lose out on more than just loans if you have a 600 credit score or below. Your credit score could affect your insurance premiums, your job, and even where you live. It’s unfair because it’s too easy to ruin your credit score. A missed payment or even avoiding debt altogether could mean bad credit at no fault of your own.
Fortunately, it can be just as easy to fix your credit, and I’ve got one tool to help you get the money you need and increase your score simultaneously. First, we’ll look at how a 600 FICO affects your life and what you can do about it.
How Many Americans Have a 600 Credit Score?
The credit scoring agencies don’t release the actual number of people with a specific credit score, but they offer ranges occasionally. Credit scores have increased since the 2008 recession, but many Americans are still unfairly locked out of the financial system.
One in four Americans (23%) has a credit score below 600 FICO, while about 10% of the population scores within the 600 to 649 range.
We usually consider credit scores when we need money or look at our credit card statements. Your credit score affects the interest rate you get on loans and whether a lender approves you for a new loan, but it also means a lot more.
One of the most unfair ways a credit score can affect your life is through your car insurance. Insurance companies are allowed to charge bad credit drivers more for insurance, something called credit-based insurance. As a result, drivers with poor credit may pay as much as 20% more in premiums for insurance than good credit borrowers.
You may not be able to get a home mortgage with a 600 credit score, and you might even have a hard time renting. This is because landlords can pull your credit report and FICO score before accepting your application and may deny bad credit borrowers as too risky.
Potential employers also look at your credit as if all that wasn’t bad enough. That sub-prime credit score may keep you from getting a job in finance or management.
With your credit score affecting so many parts of your life, is a 600 FICO considered bad credit, or is it bad enough to affect your opportunities?
Is a 600 FICO Bad Credit?
When we talk about credit scores, it’s usually in terms of ranges or whether something is ‘good’ or ‘bad’ credit. The truth is, there’s one number that matters, around 660 or 680.
Right around that number is the cutoff for what’s called ‘prime’ credit. This cutoff is the point where banks can approve loans, and you start seeing lower rates. Anything below a prime credit score is considered bad credit, and your options will be limited.
So the short answer is that a 600 FICO is not good credit, but there’s a lot more than the short answer. So many factors go into getting approved for a loan, and your credit score is only one of them.
But that doesn’t mean a 600 credit score is bad credit. It’s very easy to get a score below prime. Just one missed payment or loan default will get you there. Maxing out your credit cards will also hurt your score.
You might also have a low credit score just because you don’t have much credit history. Many students have sub-prime credit because they have never used a loan or credit card. A lot of people that have just always avoided credit cards or debt may have a 600 credit score or lower.
It’s good that you want to avoid debt and credit cards, but not building up your credit score can cause massive problems down the road. It will probably not keep you from getting a job but will certainly keep you from getting an emergency loan or a mortgage. You will likely also be forced to pay higher premiums on your insurance.
While a 600 credit score is considered low, it’s far from the worst score I’ve seen, and your options are suitable for increasing your score and getting the money you need.
How to Get a Loan with a 600 Credit Score?
So what can you do with a 600 credit score? Of course, that depends on what you want to do…
If you’re looking for a mortgage or a loan over $40,000, your options will be limited. You’ll need a 650 credit score or higher to get in the door at a traditional bank for a loan.
Banks can’t loan to borrowers with deficient scores because the loans don’t qualify to be resold to investors, something the bank does to get the cash needed to make more loans.
There is a solution, though, one that will get you the money you need and help increase your credit score.
It’s called a debt consolidation loan. You might have heard about consolidation loans as a way to pay off your high-interest loans, but there are a couple of other benefits that will also help you.
- Take out one loan to pay off all your credit card and high-rate debt. Since personal loans can be used for anything, you can also get a little extra cash to ensure you don’t need any more loans.
- The lower-rate consolidation loan lowers your payments and saves money on interest. You can use that extra money to pay off the loan faster, helping you to reduce your total debt owed and boost your credit score.
- One loan payment makes it easier to remember those monthly payments, and you’re less likely to forget a payment that can destroy your score and cost you late fees.
- Since personal loans are non-revolving debt, they have a fixed payment and payoff date, and they don’t hurt your credit score as severely as revolving (credit card) debt. However, the type of debt you have affects up to 15% of your score, which can immediately increase your FICO.
I’ve used PersonalLoans.com for a consolidation loan and a home improvement loan. They specialize in bad credit loans and offer interest rates you can afford. I like online lenders for two reasons. First, they provide different types of loans, from peer-to-peer to personal and bank lending, depending on your credit. The website also sells your loan to other lenders to ensure you get the best rate possible.
Consolidation loans are available for between six and 72 months. I recommend a 36- or 60-month payoff. You want to spread your loan out enough that your payments are manageable, but you want to pay it off as soon as possible.
Borrowers with no credit history might want to try Upstart as well. It’s a newer online lender with a unique lending model designed to look at more than just your credit history. It’s specifically designed for students and graduates because it looks at your school record in the decision.
Applying for a personal loan is free and doesn’t affect your credit score. Lenders do a soft-pull of your credit first to estimate a rate, and the application will only go on your credit report after you accept the loan. I recommend applying on several sites to ensure you get the best rate possible.
A consolidation loan is just one of the tools I used to boost my credit score by over 100 points after destroying my credit in 2008. My FICO was way below 600 at its lowest but is now over 730, and I have no trouble getting loans.
How to Get a 600 Credit Score Car Loan
Car loans are going to be dangerous with a 600 credit score. It’s not that car loans are bad, but the fact that you’ll be denied a loan from new car dealers or legit used car lots because of bad credit leaves you exposed to the scams from buy-here, pay-here salespeople.
These used car fraudsters prey on bad credit borrowers with nowhere else to turn for a loan. There are two different ways these people rob you blind.
- Charging thousands more on a car than what it’s worth. This gouging makes interest rates on car loans pointless because the vehicle is so overpriced anyway that the dealer doesn’t have to worry about the loan.
- They are charging interest rates of 18% and higher. Some dealers will lure you in with lower car prices but then charge an arm and a leg on the interest.
Your best option is to get your own personal loan and take that to find the lowest price car. This way, you can still get the vehicle you want and a price you can afford but don’t have to fall victim to the buy-here, pay-here scams.
Can I Get a Mortgage or Credit Card with a 600 Credit Score
This is another one of the most common questions I get around credit scores, whether someone can get a mortgage or credit card.
Most likely, you won’t be able to get a mortgage with a 600 credit score. Banks and credit unions have been known to make exceptions on credit requirements for people with credit scores as low as 660 FICO if you have a long credit history with the bank, but they’ll never go as low as 600.
You can try using a personal loan for your down payment on a house and ask the seller to provide financing for two years while you increase your credit score. Within two years, your score will have improved up past that prime credit cutoff, and you’ll get better rates on a mortgage.
Getting a credit card with a 600 credit score is a dangerous situation, though. You’ll get offers in the mail for new cards, but the rate will be at 28% or higher in most cases. That’s a lot of money paid to interest, and it will be really easy to get behind again.
Like most credit or loans, it will work out much better if you can wait a few months while you increase your score. It’s here in the 600s that you start noticing better offers and rates on credit. After that, you’ll start getting traditional loans and even advertised speeds as you approach that prime credit cutoff.
How to Increase a 600 Credit Score
The upside to having a 600 FICO is that you’ll notice fast changes in your score in surprisingly little time. For example, I increased my credit score from a low of 560 FICO to 700 in less than a year and now have an 819 FICO. A few credit score tricks work fast to boost your score and will put you on that path to improving your credit. I recently shared the best hacks I used to increase my score on my YouTube channel.
Having a 600 credit score doesn’t mean you did anything wrong or destroyed your credit. It’s easy to miss a payment, and it doesn’t take much to drive your FICO lower. While a 600 FICO is not a good credit score, other factors can help you get a loan or the money you need. It does mean you’ll need to work on increasing your credit score, or it could affect your life more than you realize. Protect your credit, and a whole new world will open to you.
Read the Entire Peer Lending Series
- 15 Ways to Borrow Money Fast [Ultimate Guide]
- How to Get Peer-to-Peer Online Loans with Bad Credit
- Personalloans.com Review: Peer Lending for Bad Credit Loans
- BadCreditLoans Review: How to Get a Loan with Poor Credit History
- Upstart Review 2021: Applying for a Personal Loan with Bad Credit Score