What is Considered a Bad Credit Score in 2009?

What is a bad credit score in this economy? What can I do to improve my score if I find out that it’s low? How does a bad credit score affect me when buying a home?

These are all common questions among home buyers in 2009, and among consumers in general. So in today’s lesson, I’ll explain what’s considered to be a bad credit score and how you can lift yourself out of that range.

A Bad Credit Score – What’s In a Name?

Good. Bad. Excellent. Average. Terrible. By themselves, these words don’t mean very much. They’re simply too relative and vague to be useful to you. What is considered a good or bad score? What’s excellent? And what kind of scale are we talking about anyway?

First, let me explain what I consider to be a good credit score, in terms of home buying. When you apply for a mortgage loan as part of the buying process, the lender will review all aspects of your financial background. Your FICO credit score is one of the key factors they will consider when reviewing your loan application. It’s not the only criteria, but it’s one of the most important ones.

So within this context, a bad credit score is one that either (A) prevents you from getting a mortgage loan in the first place, or (B) limits you to a loan with a very high interest rate. In other words, a score can be considered bad when it puts the mortgage out of reach or increases your interest rate above the average rate.

The FICO score is the one most commonly used by lenders. You actually have three of these scores, one from each of the credit reporting bureaus (TransUnion, Experian and Equifax). The range for this score is 300 – 850, where higher is better.

It’s hard to put a number on a “bad” credit score, because mortgage lenders have their own criteria for this. In the current economy, you would probably need a score of 760 or higher to qualify for the best rates a lender has to offer. But you could still get qualified for a home loan below a 760 — you just won’t qualify for the best rates.

By the definition I offered above, I would say anything below a 650 is considered a bad credit score in the current economy. Within this range or below, you would probably have trouble qualifying for a mortgage loan. And if you did qualify, you certainly wouldn’t get the best rates. So it meets the definition set forth above.

You can learn how to improve a bad credit score from this collection of tips:
www.cornettcommunications.com/credit-score.php

Again, all of this will vary from one lender to another, and it’s only one part of the larger picture of mortgage qualification. If you want to see if you qualify for a loan, of if you want to find out what your current score is, just use the tools in the upper-right section of this blog.