Is 586 a Good Credit Score & How to Improve It
Is 586 a good credit score? Understand its financial implications and learn actionable strategies to improve your credit standing.
A credit score is a numerical summary of an individual’s creditworthiness. Its primary purpose is to help lenders assess the risk associated with lending money. This three-digit number, often generated by models like FICO or VantageScore, provides a quick snapshot of how reliably an individual manages financial obligations. It is a key factor in determining access to various financial products and services.
Understanding Credit Score Ranges
Credit scores are generally categorized into several tiers, reflecting different levels of credit risk. Scores typically range from 300 to 850.
A score in the 580s usually falls into the “Fair” or “Poor” category, depending on the scoring model used. A “Good” credit score begins around 670 to 700, while scores above 800 are considered “Exceptional” or “Excellent”. Scores below 580 are considered “Very Poor,” indicating a higher risk to lenders.
Implications of a 586 Credit Score
A 586 credit score limits access to favorable financial terms. Individuals with this score may face challenges seeking approval for significant loans. Lenders view scores in this range as indicative of increased risk, leading to loan denials or stricter approval conditions.
When approval is granted, a 586 credit score results in higher interest rates on borrowed money. Access to credit cards also becomes more restricted, often limited to secured cards or those with low credit limits and higher annual fees.
Beyond traditional lending, a 586 score can impact housing opportunities. Landlords might request larger security deposits or reject rental applications. Insurance premiums can also be affected, as some insurers use credit-based insurance scores to determine rates. Furthermore, utility providers may require higher security deposits for new service connections.
Factors Influencing Credit Scores
Credit scores are calculated based on several distinct factors, each carrying a different weight. Payment history is a significant component, reflecting whether past credit obligations have been paid on time.
Credit utilization is another important element, representing the amount of credit currently used compared to the total available credit. Maintaining low credit utilization, ideally below 30% of available credit, is favorable. The length of credit history also plays a role, indicating how long credit accounts have been established.
The credit mix, which refers to the different types of credit accounts an individual holds (e.g., installment loans, revolving credit), contributes to the score. New credit applications and hard inquiries can temporarily affect a score.
Improving Your Credit Score
Improving a 586 credit score requires effort. The most impactful step is to make all bill payments on time. Setting up automatic payments or calendar reminders for due dates helps establish a strong payment history. Regularly paying down outstanding balances on credit cards is crucial to reduce credit utilization.
Aim to keep your credit card balances below 30% of your available credit limit on each card. For instance, if you have a card with a $1,000 limit, try to keep the balance under $300. Addressing any delinquent accounts or collection items is important; contact creditors to arrange payment plans or settlements.
Avoid opening multiple new credit accounts within a short period, as each new application generates a “hard inquiry” that can temporarily lower your score. Regularly reviewing your credit reports from major credit bureaus is necessary. You are entitled to a free report from each bureau annually, and checking these reports allows you to identify and dispute any errors.
For individuals with limited credit history or a lower score, considering a secured credit card or a credit-builder loan can help. A secured credit card requires a cash deposit that acts as your credit limit, helping to build positive payment history. A credit-builder loan involves making regular payments into a savings account, which is then released to you at the end of the loan term, establishing a payment record. Both tools offer structured ways to demonstrate responsible credit behavior without incurring high levels of debt.