Posted by: John S Kiernan

A bad credit score is a credit score from 300 to 619, or 639, depending on whom you ask. There’s no universal definition for bad credit for the same reasons there’s no single “real” credit score: Many ways to measure credit exist, and a lot depends on the lender. That said, you probably have a bad credit score if you’ve declared bankruptcy in the last three years or fallen at least 60 days behind on a bill payment in the last nine months. Your odds of having bad credit are also high if you currently have a past-due credit card or loan bill, or your credit cards are maxed out. And no matter what you call it or where you draw the upper limit, you don’t want to be anywhere close to the bad credit section of the credit score range – at least not for long. Not only will a bad credit score make it harder and more expensive to get a loan, but it could also complicate your living situation and even your job options. Fortunately, a bad credit score is not a life sentence. You should be able to go from bad credit to fair credit in 12-18 months, if you’re careful. Exactly how you should go about repairing your credit and how long that will take depend on how badly damaged your credit is in the first place. So your first order of business should be to check your latest credit score and see where you’re starting from. You can do that for free on WalletHub and get personalized credit improvement advice in the process.

Check Your Latest Credit Score – 100% Free

A bad credit score can cost you well over $1,000 per year, compared to a good score. So it’s important to begin rebuilding as soon as possible. That’s especially true since there are no quick fixes. Rather, you must get to work devaluing the negative records on your credit reports. Like a struggling swimmer who makes strong, consistent strokes to bring his or her head above water, you have to consistently add positive information to your credit reports to overcome past mistakes and see score improvement.

The best way to add positive info to your credit reports and rebuild your credit is to use a secured credit card responsibly. That means either paying your bill by the due date every month or not using your card to make purchases at all. Either way, you’ll get credit for an on-time payment.

What Does a Bad Credit Score Mean for Your Wallet?

A bad credit score does not mean you’re out of options. It just means they’re fewer in number and not as attractive as those available to people with better scores, even folks with limited or no credit. For example, you can get a credit card with bad credit, but you’re unlikely to get rewards or avoid an annual fee unless you place a refundable security deposit, which is required to open a secured credit card account. Furthermore, only a small percentage of auto loans and mortgages go to people with bad credit scores, as you can see below. But the fact that it’s possible to get such loans with poor credit should be encouraging.

Percentage of New Accounts Opened, by Credit Score

	Credit Score of 300-539	Credit Score of 540-579	Credit Score of 580-619
Credit Card	3.7%	6.0%	8.9%
Store Card	3.5%	6.7%	11.8%
Auto Loan	6.2%	5.8%	8.4%
Mortgage	0.5%	1.2%	4.1%

Source: Equifax, Q4 2017 Consumer Credit Trends

The ability to obtain credit despite a bad score is crucial to rebuilding. You need a loan or line of credit reporting positive information to the major credit bureaus on a monthly basis to overcome the negative records already on your credit reports. And you need to get the ball rolling as soon as possible, given the high cost of a bad credit score. Below, you can see how much more per year the average person with bad credit has to spend on common financial products than the average person with good credit.Annual Cost of Bad Credit vs. Good Credit

So in addition to making approval harder to come by, bad credit also increases the cost of borrowing. As a result, you probably don’t want to apply for a mortgage or an auto loan until you improve your credit score. The good news is there’s a way to do that while still keeping costs low.

What’s the Best Way to Improve a Bad Credit Score?

The best way to improve a bad credit score is to open a secured credit card account and pay your bill on time every month, if you even use your card to make purchases. Secured credit cards are easy to get, even for people with very bad credit. In fact, they offer nearly guaranteed approval, and some don’t even check applicants’ credit. But all major secured cards do report account information to the credit bureaus on a monthly basis. And if that info is positive, it will gradually cover up the mistakes that led your credit into bad territory. You can ensure that by never missing a due date. And one way to accomplish that is by paying any annual fee you card may charge and then locking it away. In other words, even a card with no balance gets credit for on-time payments and can help improve your score.

Secured credit cards also make credit improvement inexpensive. There usually are a handful of secured cards with no annual fee and many more offers with low yearly charges. That’s because you have to place a refundable security deposit, usually $200+, the amount of which becomes your spending limit. This protects issuers against the threat of people not paying their bills, but you get the money back (minus any amount owed) when you close your account.

However, the fact that you have to basically pre-pay whatever you charge to a secured card means such a card won’t provide any sort of emergency loan. For that, you will need an unsecured credit card for bad credit. Such cards will also help you build credit if you pay the bills on time, but they only make sense to get in emergency situations because of high non-refundable fees.

At the end of the day, everyone’s situation is a bit different, which means the specific solutions to bad credit must be, too. You can learn the best course of action for your circumstances by signing up for a free WalletHub account and reviewing your personalized credit analysis. We’ll tell you exactly what to fix, how to do it and how long it’s likely to take.

Get Your Personalized Credit Analysis – 100% Free

Generally, you can expect to see some credit score improvement within 12-18 months, assuming you have an open credit card account that’s in good standing.

Who Has Bad Credit Scores?

Nearly one-third (31%) of U.S. adults have bad credit, according to WalletHub data. The average person with bad credit is 41 years old and earns nearly $46,000 per year.

But bad credit comes in many shapes and sizes. It could be due to the combination of limited credit and a couple missed payments, for example, which would be pretty easy to overcome. Or it could be the result of a major financial event, such as bankruptcy or foreclosure, which will likely take years to recover from. Some people with bad credit make a lot of money, others don’t. And some states have a higher percentage of people with bad credit than others, due to a variety of factors.

Below, you can see where the biggest battles against bad credit are being waged.

Geochart with % of people with bad scores by state:

State	Average Credit Score	% of Scores below 620
AK	673	31.42%
AL	650	42.15%
AR	658	38.74%
AZ	672	32.41%
CA	681	27.90%
CO	688	27.26%
CT	679	29.59%
DC	669	33.30%
DE	668	35.10%
FL	667	33.89%
GA	653	40.28%
HI	702	19.83%
IA	685	28.45%
ID	686	27.18%
IL	675	31.43%
IN	665	36.09%
KS	677	31.69%
KY	661	37.81%
LA	650	41.43%
MA	690	25.62%
MD	668	34.48%
ME	676	30.73%
MI	671	33.58%
MN	705	21.08%
MO	672	33.61%
MS	648	41.93%
MT	691	25.84%
NC	664	36.27%
ND	703	21.21%
NE	694	25.28%
NH	690	26.14%
NJ	674	31.89%
NM	661	37.12%
NV	650	40.63%
NY	683	27.34%
OH	670	34.55%
OK	661	36.70%
OR	691	25.44%
PA	678	31.19%
RI	674	31.43%
SC	654	40.70%
SD	700	22.49%
TN	661	37.58%
TX	656	38.65%
UT	682	27.85%
VA	682	29.17%
VT	693	24.99%
WA	692	24.64%
WI	683	29.36%
WV	661	38.08%
WY	679	30.05%

Source: TransUnion, 2017

For more information on escaping poor credit, check out WalletHub’s guides on how to rebuild credit and how long it takes.

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