Your financial well-being is heavily dependent on your credit reports and credit scores. More than 200 million Americans have credit reports at the three credit reporting agencies. Curious how you compare to them? Here is your chance to see—we’ve collected 15 bad credit stats that might surprise you.
With these 15 bad credit statistics, you’ll also learn about common problems that hold down credit scores, as well as some reasons you should strive to improve your credit scores.
Only 11% of Americans have the lowest FICO scores.
It’s true that credit problems are fairly common. However, having severely low credit scores is not common. According to FICO, the corporation that developed the FICO credit scoring system, only 11.1% of U.S. consumers have credit scores lower than 550. . (Scores below 580 on the 300-850 FICO scale are very poor.)
Those with low credit scores face many obstacles when compared to those with higher scores. For example, those with very low credit scores may have a difficult time obtaining financing, depending on the lender’s approval requirements. Consumers with the lowest credit scores can still qualify for a loan, credit card, or other types of account, but they will pay significantly higher interest rates and receive less attractive borrowing terms.
If you want to look at this from a glass-half-full perspective, the best rates are usually reserved for individuals with FICO scores of 700 or higher. 89% of the population has FICO scores of 550 or higher. Credit is definitely available for those scoring in the 500s or 600s, although it may not be offered at the best rates.
More than 20% of Americans have a subprime credit score.
A subprime credit score, according to Experian, is a FICO Score between 580 and 669. 18% of Americans have a credit score in this range. Credit scores in this range (580-669) are not as detrimental as those with a score of 580 or less. You may still be able to get financing at a better rate than those with major credit issues, but s.you may still be unable to qualify for certain types of financing, such as premium credit cards.
More than 43% of consumers now have excellent FICO scores.
More than 22% of U.S. consumers have FICO scores over 800, and 43% of people have scores over 750. Those are elite credit scores, by any definition. You’re not alone if you have bad credit, but you should work hard to be part of the majority.
There are several common characteristics among consumers with these excellent credit scores. If you want to join this group, these are the good habits you will have to practice:
- Always pay your bills on time at all times.
- Keep your credit utilization (balance-to-limit ratio) low on your credit cards.
- Get a good mix of different types of accounts on your credit report, i.e. installment loans, revolving credit cards, etc.
These financial best practices will help you achieve a credit score that ranks among the elite 43% of the population.
17% of the population has been at least three months late on a loan in the last two years.
FICO and VantageScore credit scores are designed to estimate how likely you are to default on a credit obligation in the next 24 months. Being 90 days late on credit cards, automobile loans, mortgages, or any other account on your credit report is a significant problem because you’ve already demonstrated to credit scoring models that you’re prepared to go well beyond the due date.
90-day late payments can really hurt you, especially in the beginning. Your credit score may be severely damaged. However, the same 90-day late payment won’t affect everyone’s credit score the same way..If you have a higher score, your credit report will suffer more if you make a new 90-day late payment because you have more points to forgo. Someone with poor credit will not suffer the same consequences because they have already forfeited so many points. Thankfully, if you avoid delinquency in the future,, the late payment’s impact will dwindle over time.
Nearly 20% of consumers have been 30 days (or more) past due in the last 12 months.
It’s best to pay your creditors on time to maintain a strong credit history. Conversely, paying your creditors late is one of the fastest methods to ruin your credit rating. Your payment history accounts for 35% of your FICO score, which makes it the most important factor.
A late payment, even a single one, can have serious repercussions. For some consumers, a new 30-day late payment may result in a credit score drop of 30 points or more, depending on when the late payment occurred and whether the account was still past due.
According to the FTC, 20% of consumers have an error on at least one of their credit reports.
It is critical to take responsibility for your poor credit score if you make a mistake. Admitting that there is a problem may be difficult, but doing so puts you in control and should encourage you to improve your credit management habits.
However, your credit might be damaged due to someone else’s mistakes, or a credit bureau might accidentally mess up and report inaccurate credit information. According to the Federal Trade Commission’s credit reporting accuracy study, 20% of consumers have at least one error on one of their credit reports. That is why the Fair Credit Reporting Act’s dispute provision exists. Consumers who think their credit reports contain errors may dispute them and have them corrected for free.
Luckily, there are also credit repair companies that can help you dispute any inaccurate information on your credit report and make the process stress-free for you.
Around 15% of U.S. consumers don’t have a FICO score.
Having no credit score can negatively affect you when you want to apply for a new credit card or loan. You may not be aware that having bad credit could keep you from progressing in many situations. After all, lenders might be hesitant to provide you with money when they have no idea how well you managed your credit obligations in the past.
Your report must meet certain minimum standards to qualify for a FICO credit score. These include;
- An account older than 6 months that you can prove without a doubt belongs to you.
- No deceased notation on your credit report.
- Have one undisputed account updated within the last 6 months.
According to FICO, around 15% of U.S. consumer credit reports do not meet these requirements and thus cannot receive a FICO Score. VantageScore, a competing scoring model to FICO, has a more liberal scoring threshold, so more people have a VantageScore credit score than a FICO credit score.
NOTE: Some personal finance celebrities boast of having a “zero” FICO Score which is completely impossible. There is no such thing as a credit score of zero. Scores range from 300 to 850.
Every few seconds, someone’s identity is stolen.
Credit scores can be damaged not only by poor credit management and credit reporting errors, but also by fraud and identity theft. Every two seconds, someone becomes a new victim of identity theft.
It is crucial to act immediately if you think you have been victimized by identity theft. You can either place fraud alerts on your credit reports or freeze them entirely. You may even choose to utilize both credit protection tools simultaneously if you prefer.
Credit freezes are much better than fraud alerts because they are proactive and prevent creditors from seeing your credit reports and scores. Using this approach, you can prevent a new account from being opened rather than being informed after it has been opened.
43% of consumers haven’t checked their credit scores in the last year.
Credit reporting errors and identity theft are prevalent issues. Checking your three credit reports from Experian, TransUnion, and Equifax can help you detect them. It’s a smart move. A significant drop in your credit score, after all, might indicate that something is wrong with your credit reports. Your credit information is so important that reviewing your reports and scores once a month is ideal.
Unfortunately, the number of people who neglect to monitor their credit is significant. According to an annual survey by the Consumer Federation of America and VantageScore Solutions, 43% of consumers have not checked their credit scores in the last year.
You can check your three credit reports for free once every 12 months at AnnualCreditReport.com.
Children can also have poor credit.
You work hard as a parent to keep your child safe and healthy. You instruct your child how to brush their teeth, eat their vegetables, and avoid sticking their fingers in electrical sockets. You may not realize that your child’s credit reports also need protecting.
Normally, children under 18 shouldn’t even have credit reports or scores. For example, your son or daughter may not have a credit report until after they turn 18 and apply for a student credit card or a loan. Conversely, you may add them to your existing credit card account as an authorized user to establish credit sooner.
Sadly, there is another reason a credit bureau may create a credit file for your child. Children can be victims of identity theft. According to Javelin Strategy & Research, over one million children were victims of identity theft in 2018. Fraudsters can create an inquiry-only credit report when they use a child’s name to apply for credit. This is because it contains no negative information, so it can be used to apply for fraudulent credit.
It is important to be on the lookout for warning signs of child identity theft, such as unexpected bills or collection calls on behalf of your child. It is also possible to freeze your child’s credit reports with the three credit bureaus for additional security if you wish.
The average credit card balance is more than $5,000.
Using your credit cards and paying them off monthly is the best way to protect your credit scores and bank accounts. Many Americans, however, do not follow this important rule of thumb. According to Experian, the average credit card balance among U.S. consumers was $5,221 as of Q3 2021.
You may allow your credit card balances to creep upward for several reasons. You may have used credit cards to help you through a financial emergency or to help you make ends meet if you lost your job or didn’t follow a monthly budget. Or you may simply have a bad habit of overspending.
It doesn’t matter what caused your credit card debt; you should begin chipping away at those balances as soon as possible. For example, you may want to consider consolidating your credit card debt with a personal loan or balance transfer offer.
62% of adults have accrued credit card debt in the last year, according to the NFCC.
Despite the fact that credit card accounts can help you build your credit report and credit score, credit scoring models such as FICO and VantageScore place a great deal of emphasis on how you manage your credit cards.
Using your credit cards irresponsibly by not paying off your balances every month can be a costly choice. Your credit scores will likely decline if the balance-to-limit ratios on your cards increase.
According to the National Foundation for Credit Counseling, 62% of Americans say they have had credit card debt in the last year. If you are one of these people, you should try to change your ways as soon as possible.
Paying down your credit card debt and lowering your credit card utilization rate may improve your credit score. You will also save money by avoiding costly interest charges on your credit card debt.
At least 25% of consumers with low incomes do not understand how to improve bad credit.
Having bad credit is tough to break out of. A rudimentary knowledge of credit scores is required, which is not provided at any level of education. A recent survey from the Consumer Federation of America and VantageScore Solutions Inc. indicates that at least one-quarter of low-income consumers (those who earn less than $25,000 per year) do not possess the knowledge they need to raise their credit scores.
According to the 10th annual credit score survey by the Consumer Federation of America and VantageScore Solutions, certain consumers may be hindered by credit score misconceptions. The survey reveals that low-income borrowers are unfamiliar with the following aspects of credit scores:
- 25% don’t know that mortgage lenders use credit scores.
- 30% are not aware that low credit balances boost their credit scores.
- More than 50% don’t comprehend that consumers have more than one credit score.
Maybe it’s time to bring credit education into the classroom, so that everyone can be armed with the knowledge needed to responsibly manage a credit score.
Having a low credit score can cost you over $100,000 more for a mortgage.
Having good credit scores can help you obtain attractive rates and offers when you apply for financing. The same is true for mortgage loans. It is surprising to learn just how much lower credit scores can cost you. The extra interest charges can add up to well over $100,000 on a single mortgage loan.
For example, over the life of a $350,000, 30-year fixed rate mortgage with a 2.523% APR, you would end up paying $149360 in interest. That APR rate requires a FICO score of 760 or higher. If your FICO Score is below 640, your interest rate will be 4.112%. At that rate, the total amount of money you’d pay in interest would be $259,707.
That’s $110,347 more you would pay to finance the same house over the same length of time.
Of course, this assumes that you will pay off a 30-year fixed-rate mortgage over 360 months rather than paying it off early or selling your home. It also assumes that you will not refinance your loan to take advantage of a lower rate.
On average, credit scores are rising.
The good news is that credit scores in the United States have been rising over the last nine years. The average FICO score is currently 706. A good credit score for the average U.S. consumer is one that is considered to be in the range of 700 to 799. However, it is up to your lenders to determine what constitutes a good credit score.
Only 8% of consumers with great credit scores are predicted to default on their credit obligations in the future. If you work hard to repair bad credit and boost your credit scores into the good range, you will probably be granted much better offers when you seek new loans.
What do these stats tell you?
One, you may be denied certain types of financing if you have bad credit. Renting an apartment, getting a new cell phone plan, or even getting a new job can be difficult if you have a poor credit history. You may be forced to pay higher interest rates, higher insurance premiums, higher deposits for utilities, and more if you have low credit scores.
Having bad credit is not uncommon, but you should not view it as an irreversible situation. Many people have had credit problems and worked hard to alter their situations. Even minor advancements along the path of improving your credit score can significantly impact your financial well-being. However, it can be a long, difficult journey. But even the little steps like raising your credit score from 550 to 600 is something to celebrate.
Reach out to us today if bad credit is holding you back. We can help by removing and challenging the negative items that affect your credit score.
Thank you for reading our article. We hope you learned new ways to battle creditors and banks while protecting yourself.
We would encourage you to become a member of HigherScoreNow.com and start to leverage all the benefits of having good credit. You deserve this.
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