What To Do When Your Credit Score Is “Poor.”
If you are seeking new credit in the form of a credit card, home or auto loan, and your FICO credit score falls into the 600–639 range, you may find that your options are somewhat limited.
Most creditors consider a “poor” score to represent a serious risk: If they extend you credit or lend you money, they know there is a good chance you will not pay them back. In many cases, you simply won’t qualify for the credit you seek. In other cases, you will be offered a card or a loan, but it will come with a steep interest rate.
Let’s take a look at how you can expect to fare in the credit market and how to improve your score — and avoid the risk of falling into an even lower credit tier.
What to Expect When You Have a 600 Credit Score
You will find that most providers will be hesitant to issue a credit card to someone with a 600 credit score. If you are able to obtain a new credit card, it will likely combine a low spending limit with a high interest rate. A base interest rate of 15% to 20% or higher is not unheard of, and a late or missed payment can trigger an even higher rate.
Another option to consider with credit cards is to go the “secured” route. Secured credit card providers require you to pay money upfront as a deposit. These funds will serve as collateral if you fail to pay your monthly bill. Some secured cards require monthly fees that serve the same purpose.
Paying a card provider to give you access to credit might not seem like the best deal. But if you have a score in the 600–639 range, a secured credit card could represent a good opportunity to help you build your credit. In time, you will likely qualify for better, more traditional credit cards and loans.
Securing an auto loan might be a bit trickier. When shopping at a dealership, you may have a difficult time getting approval from your dealer’s “captive” finance company (such as Ford Motor Credit or Toyota Financial Services) or its other lenders. It may also be difficult to get a loan approval through your local bank or credit union.
Your best bet for finding an auto loan may be to apply with a specialized auto finance company that extends auto loans to those with lower credit scores. You can also work with an auto loan company that will send your loan application to only those lenders that may be a good match for you. Innovative Funding Services (IFS) is such an auto loan company that specializes in helping people with auto loan refinances and leased car purchases.
Landlords and Cosigners When You Have “Poor” Credit
There is no official cutoff among landlords who check their prospective tenants’ credit, but the prevailing wisdom says any credit score below 620 will limit your opportunities. The nature of supply and demand for the housing you seek plays a big role, as does the landlord: If you have a high income and glowing references from prior landlords, for example, they may be willing to rent to you despite your credit rating.
If you have a 600 credit score and you are not able to qualify for the credit card, auto loan or apartment you need, you may be given the opportunity to add a cosigner to your credit application.
If a family member or friend believes you have the ability to pay and is willing to vouch for you, cosigning can be a special gift. However, it also represents a serious risk for your cosigner: If you make a late payment or you are unable to pay at all, your friend or family member’s credit rating will suffer, and the creditor can come after them for repayment.
As always, your first priority should be monitoring and improving your credit.