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So you have your credit score and you think that it’s good enough to get a loan? Think again. While anything above the median score (FICO score) of 720 is good enough for any lender to approve your loan; anything below it is the lenders’ discretion or depends on the credit you have applied for. Though you may have a fair chance even with a score below median, you still need to know how fair or bad it is, so that you know how it affects you. Then how can you determine exactly what is a bad credit score?

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While big loans (including car and home loans) would certainly call for a score above 720; anything below 620 is considered bad enough (even though your loan application might still get approved). That is because you will not get favorable terms if your credit score is not good… this could translate into higher interest rate, lower loan amount sanctioned, other payment terms, collateral requirements etc.

If your credit score is anything in bad credit score range of 500 to 580, you will find it really tough to get credit approvals from lenders. You might have to hunt a lot for a lender that would approve your credit request. And the terms at which you get credit will be worse than what you would get with a good credit score.

A score below 540 is quite a low credit score for most types of credits in the market. You may still find some lender that is ready to give loan at even such low scores, but it comes with a very heavy price that can further reduce your creditworthiness and in turn severely affect your credit score. Also, a low credit score obviously means that you have not been good with managing your loans etc… so, it would be best for you to avoid going for more loans that could potentially send you into a debt spiral.

Despite your bad credit score, there are companies that offer loans with bad credit score, so you still have a chance in case you cannot wait to repair your scores and need a loan urgently. However, you will find that such loans will generally come with a collateral requirement i.e. secured loans. Moreover, the amount of loan would be smaller and the interest rates higher than what is offered to people with good credit score.

So, the amount of credit you can get would be limited with poor credit score e.g. in case of a mortgage, you would be required to make a bigger down payment than someone with a good score. However, since your house is secured against such a loan, it is very important that you decide carefully before taking a mortgage with bad credit score. You risk losing your house in case you default on your payments, so you have to be very meticulous.

In case of credit cards too, you might not be able to get a usual credit card (unsecured credit card). Instead, you might have only the option of getting a secured credit card (the credit limit on which is linked to the amount of money in your bank account) or a pre-paid credit card which in reality doesn’t offer any credit because the credit limit is linked to the amount you have pre-paid for getting that credit card (pre-paid credit cards just offer convenience and a lot of people also use them to improve/build their credit history).

There are various measures that you can take to convert your bad credit score to a good credit score:

1. Ensure that your credit report is correct. You can get a free report annually from one of the three credit bureaus (Equifax, Experian, and TransUnion) and check that the accounts mentioned are indeed your accounts and have correct information on them.

2. Cut down on unnecessary expenses and just buy stuff that you really-really need (not want). This will prevent your debt from piling up.

3. Pay your bills and monthly loan installments on time. Set reminders for yourself or setup auto-debit from your bank account in order to avoid missing the date.

4. Ensure that you have enough credit limits available on your credit cards. Percentage of credit limit available is an important factor too.

5. Avoid bankruptcy or settlements – these could stay on your credit report and negatively impact your credit score for years to come.

So, be careful with how you manage your debts as it can affect your credit score which in turn can affect a lot of other things (including employability).