What is the Lowest Credit Score Possible?

The FICO score system spans from 300 to 850. But though the lowest credit score possible is 300, even those with the worst credit scores will rarely see a credit score that low. If your score is in the 300s, it is best to take steps to improve it. The lower your credit score is, the less likely you are to be approved for a credit card or personal loan. And you may be unable to rent or lease an apartment too.

Highlights & Key Takeaways

• The lowest credit score possible is 300 in the FICO and VantageScore credit scoring models. 
• Anywhere from 300 to 579 is usually considered a poor credit score.
• A poor credit score can make it difficult to qualify for loans and credit cards with favorable limits and interest rates and you may be unable to qualify for a lease without a co-signer. 
• It is possible to have no credit score if you have a thin credit file, no recent credit activity, or no credit accounts. 

What Causes a Low Credit Score?

You can have a low credit score for a variety of reasons. But usually, it is not one single factor driving your score down. Overall, a low credit score is caused by multiple poor financial behaviors such as late payments, overextending on credit, or failing to make payments on an account, and it has been transferred to a collections agency. Filing for bankruptcy or foreclosure can seriously damage your credit score too. Here’s what you need to know about what can drive your credit score down low.

A History of Late Payments

Your credit score is calculated using several key factors, the biggest of which is your payment history. Your payment history represents 35% of your overall credit score. If you fail to make a payment and don’t make it up within 30 days, the creditor will most likely report that lack of payment to one or all credit bureaus (Experian, Equifax, and TransUnion). And you’ll likely see your score plummet by as much as 180 points.

Using Too Much Credit 

Your prospective creditors, lenders, and credit bureaus want to know that you are responsible regarding your financial borrowing behavior. And even though you might have credit cards from multiple creditors, all with reasonable to high borrowing limits, it doesn’t mean that you should spend up to your credit limit. The golden rule is to keep your total balances at 30% or less of your total credit line. For example, if you have two credit cards, both with a $5,000 limit, you should ensure that your balance is under $2,500 on each. 

Accounts in Collections

When you take out a personal loan, auto loan, or new credit card, you make an agreement with that lender or creditor that you will pay them the amount due and otherwise fulfill the agreement you made with them. Your obligations are outlined in your truth-in-lending statement as required by the Truth in Lending Act. Think of your loan agreement or credit card application and approval as a promise.

When you fail to uphold that promise and don’t pay your bill, your account can be sent to a collections agency. Accounts in collections will stay on your credit report for up to seven years. However, if you work with the collections agency and rectify your balance, you may be able to get a goodwill deletion of the account so that it no longer sits on your credit report, driving your score down.

Filing for Bankruptcy 

Consumers file for bankruptcy when they reach a situation where they can no longer manage their financial obligations and can’t find a way out. There are two ways that you can file for bankruptcy as a consumer.

• Chapter 7 bankruptcy - This type of bankruptcy focuses on getting rid of unsecured debt such as credit cards, personal loans, and medical bills
• Chapter 13 bankruptcy - This type of bankruptcy helps you get caught up on secured debts like your home or your car while also discharging unsecured debt

Most people that have reached the point where bankruptcy is the only answer prefer Chapter 7 because you are not required to repay a portion of your debt to creditors. However, Chapter 7 bankruptcy remains on your credit report for up to ten years, whereas a Chapter 13 filing only remains on your credit report for up to seven years. Either way, whichever bankruptcy route you take, you need to be prepared that rebuilding your credit will take a long time. One of the best ways to rebuild your credit is by applying for a secure credit card, and making on-time payments each month.

What Happens If You Have a Low Credit Score

A low credit score can have various negative repercussions. Rebuilding a bad credit score can often take longer and more work than building a good credit score in the first place. Here are some of the potential risks and consequences of having a low credit score. 

• You may find it difficult to get approved for credit cards and even personal loans for bad credit 
• If you are approved, you will be subject to higher interest rates on your loans and credit cards
• You may find that you have limited access to credit and financial services
• It will be difficult to rent a home or apartment unless you have a co-signer or co-applicant with a better credit rating
• You may find it hard to get a job as some employers conduct credit checks
• You will be subject to high rates on your insurance policies 
• There will be higher security deposits for utilities, rentals, and other services
• It will take a lot of time and effort to improve your credit score and financial situation due to limited access to credit and high-interest rates.
• A low credit score can be harmful to your mental health and well-being

How to Buy a House With Low Credit Score?

While a low credit score will make it harder for you to access certain homes and apartments with strict standards on the lowest credit score they will allow, it is possible. To buy a house with a low credit score, you should expect and do the following.

• Check your credit report and credit score for any errors. If you find an error, file a dispute with the applicable credit bureaus (Experian, Equifax, and TransUnion).
• Look at FHA loans if you have a credit score of at least 580 and can put 3.5% to 5% down. You may be able to get a loan if your credit score is only 500 if you put more down. You will need steady income, proof of employment, and a debt-to-income (DTI) ratio of 43% or lower.
• Rent until you can put down at least 10%. This will not only help you if you have a lower credit score, but might get you a lower interest rate and will lower your monthly payment. If you can save up at least 20% for your down payment, you may also be able to avoid mortgage insurance.
• Pay down your other debts to help lower your DTI and improve your credit score to get approved for better terms.
• Pay off your credit cards but keep the credit lines open to help improve your utilization score.
• Ask a family member or friend with a good or better credit score to co-sign your home loan with you.

How to Get a Loan With a Low Credit Score? 

Getting a personal loan with a low credit score is similar to trying to buy a house. But, before applying for a personal loan and even starting shopping around for terms and rates, you must consider your financial situation. Consider the purpose of your loan and if you are in a position to fulfill your loan obligations.

• Check your credit report and credit score for any errors. If you find an error, file a dispute with the applicable credit bureaus (Experian, Equifax, and TransUnion).
• Compare the terms provided by various lenders. Specifically, look at the minimum credit score requirements, average interest rates based on your credit score, and if there are any fees such as an origination fee, late payment fee, or early payoff penalty.
• Check for pre-qualification options that won’t affect your credit score. This will give you insight into what rate, loan amount, and repayment term to expect.
• See if a trusted family member or friend will co-sign for your loan with you. However, make sure that you can meet your financial obligations as poor payment and borrowing behavior will hurt their credit score too.
• Ensure you have all the necessary documentation before applying for a loan. Typically, you’ll need one to two forms of identification, your W-2 for the last year, two or three recent paystubs, proof of address, and your social security number.

How to Buy a Car With Low Credit Score?

If you have a low credit score, the first thing to consider is whether you can afford to take on a card payment. If you have a credit score of 600 or under, auto lenders will consider you a credit risk, and as such, your interest rate for a new car will likely be 9.75% to 12.84%. And though a used car will cost you less upfront because of the depreciation, you can anticipate an interest rate of at least 16.85% to 20.43%. However, if you need a new or new-to-you car, be sure to do the following.

• Check your credit report and credit score for any errors. If you find an error, file a dispute with the applicable credit bureaus (Experian, Equifax, and TransUnion).
• Take steps to improve your credit score before you apply.
• See if a family member or friend with better credit will co-sign your auto loan with you.
• Save up as much cash as you can to apply towards a downpayment. This will help lower your monthly amount due.
• Shop around for the best loan rates and terms.
• Get a pre-approval before getting your heart set on a certain car. This can help take the emotion out of the purchase and manage your expectations.

How to Improve Your Low Credit Score

If you have a low credit score, the common theme here is to take steps to improve your score before taking on any new credit. A good way to start is by adopting a tried-and-true budgeting plan so that you know how much money you have to work with, and where it needs to go. A good approach is the 50/20/30 budgeting plan. With this method, 50% of your money goes towards your needs, such as your home or apartment, your car, your utilities, and groceries. 20% goes into your savings account, and 30% is reserved for your wants. If you are spending well over 50% on your needs, it might indicate you need to make some lifestyle changes.

Commit to Making On-Time Payments

Making your payments on time every month is the most influential thing you can do to improve your credit. And even if late payments are dragging down your score, you can start working on building a better track record. Review your budget and see what you can spare to help you catch up on late payments and pay on time going forward. And, limit your spending on new things in the process so that your balances go down rather than stay the same or increase.

Apply for a Secured Credit Card

A secured credit card is often easier to get approved for than an unsecured credit card. With a secured card, you will pay a deposit to the credit card company that you can then borrow against. While this is basically the same as taking a loan out from yourself, this process benefits you because your creditor will report your positive payment history to the credit bureaus. As long as you are making your payments on time every month, your score should start to improve.  And, as your credit score improves, you can qualify for more types of credit with better terms. 

Apply for a Credit Builder Loan 

A credit builder loan works off a similar concept to a secured credit card. These types of loans are designed specifically to help you improve your credit and are very beneficial for people with poor credit scores or thin credit files. With a credit builder loan, you will pay a deposit to the lender, who will put those funds into a savings account or certificate of deposit. Those funds are held as collateral to ensure you fulfill your loan obligations. Once you have paid back your loan in full, you will receive your funds back.

Work with a Credit Counselor

If you are in financial distress or you are struggling to make ends meet, working with a credit counselor may be able to help. Credit counselors are specifically trained to help you do the following:

• Manage your money and debts
• Develop a budget
• Get a copy of your free credit report and scores
• Get access to educational materials and workshops
• Organize a “debt management plan” to pay down your debts

What Are The Credit Score Ranges?

Understanding the credit score ranges can help you understand where you fall compared to the national average. The average credit score for Americans at the end of 2022 was 714, which was consistent with 2021. A score of 714 falls nicely in the good range of the FICO scoring system. 

FICO Credit Score Rankings

FICO, short for Fair Isaac Corporation, headquartered out of San Jose, California, is the primary leader in the credit scoring space. They developed a credit scoring methodology back in 1989 to help lenders have a streamlined approach to determining consumer creditworthiness. Today, the FICO credit score ranges are as follows.

A 300 is considered the worst FICO score, and those with that low of a credit score will not likely be able to access credit products with low-interest rates or reasonable borrowing terms. Those with credit scores in the good or better range can get approved for personal loans for good credit and even personal loans for excellent credit.

VantageScore Credit Score Rankings

The VantageScore was created in 2006 by the three credit bureaus (Experian, Equifax, and TransUnion) to provide lenders with more options when reviewing consumers’ credit histories. According to the U.S. News World & Report, VantageScore 3.0 ranges from 300 to 850, just like the FICO score range. However, the credit score ranges within are a bit different. The VantageScore credit ranges are as follows:

How Credit Scores are Calculated

Regardless of the scoring system that the lender chooses, consumers are scored based on very similar criteria. Information is then reported to the credit bureaus every 30 to 45 days based on how you are doing against those factors, and this is why your score can rise or lower a little bit every month.

FICO Credit Score Calculation

The FICO score uses the following factors to calculate your credit score. 

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10% 

VantageScore Credit Score Calculation 

The VantageScore uses very similar factors as FICO but follows this approach to calculate your credit score.

• Payment history: 41%
• Depth of credit: 20%
• Credit utilization: 20%
• Recent credit: 11%
• Balances: 6%
• Available credit: 2% 

As you can see, your payment history and credit utilization are the most influential factors when calculating your credit score, regardless of the methodology.

Final Word

If you have a low credit score of 669 or under, the best thing you can do is to improve your credit score. As consumers, we need access to credit to buy homes, cars, and even sometimes to finance a home improvement project or take a dream family vacation. But if you have the worst credit score of 300, even though that is pretty rare, you won’t likely get approved for the terms and rates that you desire. Follow the recommendations listed in our article to help you improve your credit score and creditworthiness so that you can have access to lower interest rates and better borrowing terms.