Is A 550 Credit Score Bad?
August 12th, 2012 | Author: Stephanie
[A] credit score is a number that many lenders use to determine whether to grant you credit and at what interest rates. The higher the score, the more likely you will get loans at favorable terms. Also, many auto insurance companies review your credit score. As unfair as it sounds, insurance companies claim that studies show that people with poor credit are much more likely to drive recklessly and file false claims than people with good credit. A 550 is considered a sub-prime credit score, which means you will have a hard time getting approved for credit.
The best possible credit score is 850. Generally, you need at least 700 to get approved for virtually any loan or credit card at rock-bottom interest rates. Once you get to about 650, you are no longer considered a potentially “prime” customer. A lender, especially these days, is afraid to take risks on people with a very low credit score of 550.
If you can get approved for a loan or credit card, you will probably pay at least 15 percent interest on the account. Higher interest rates, especially for credit cards, are not uncommon. Some people with a 550 credit score pay
as much as 30 percent interest on their credit card accounts. The lender feels you are less likely to repay the debt, so they charge more interest so they can more easily recoup their losses if you default on the account.
You might have a slightly easier time getting loans secured by a home or a motor vehicle, but with a 550 it still will not be an easy road to travel. Generally, a lender is going to require you to pay at least 10 percent down toward a home or vehicle purchase. Again, the lender is already expecting problems with your ability to repay so he wants to protect his profits if at all possible. You will likely have to pay a higher interest rate, which means you will be able to purchase a less expensive home or car than you would if your credit score was better.
Time will help increase your credit score, because you usually do not get as low as 550 without a history of late bill payments. It takes seven years for most damaging credit report entries to go away. During this time, you can boost your credit score by paying all your bills on time and keep your credit card account balances as low as possible.