Is a 400 Credit Score Good? What It Means & How to Fix It

A credit score is a numerical representation of an individual’s creditworthiness, summarizing information from a credit report. Lenders use these scores to evaluate risk for loan approvals and interest rates.

Understanding Credit Score Ranges

Two primary credit scoring models are widely used: FICO and VantageScore. Both models use a score range from 300 to 850. A higher score indicates lower risk.

For FICO Scores, 300-579 is “Poor,” and 580-669 is “Fair.” VantageScore categorizes 300-499 as “Very Poor” and 500-600 as “Poor.” A 400 credit score falls into the “Poor” or “Very Poor” range, indicating significant risk to potential lenders.

Implications of a 400 Credit Score

A 400 credit score presents considerable financial hurdles. Individuals with such low scores often face difficulty obtaining various types of credit, including personal loans, auto loans, mortgages, and credit cards. When approval is granted, it comes with unfavorable terms, such as higher interest rates and less flexible repayment conditions. A low credit score can also affect housing opportunities, as many landlords check credit reports, potentially requiring higher security deposits or denying applications. In some states, credit scores can also influence insurance premiums, and utility providers may request large security deposits.

Factors Contributing to a Low Credit Score

Several factors contribute to a credit score. Payment history is the most significant factor, accounting for 35% to 40% of a FICO or VantageScore. Late or missed payments, defaults, collection accounts, and bankruptcies severely impact this component.

Credit utilization, the amount of credit used relative to the total available credit, is another major factor, typically accounting for 30% of a FICO score and 20% of a VantageScore. High utilization, such as maxing out credit cards, indicates a higher risk. The length of credit history, encompassing the age of accounts, also plays a role, generally favoring longer histories. New credit inquiries and the types of credit accounts maintained, such as a mix of revolving and installment credit, also influence the score.

Steps to Improve a Low Credit Score

Improving a low credit score requires consistent actions. Making all payments on time is the most impactful step, as payment history is the largest component of credit scores. Setting up automatic payments or reminders can help ensure bills are paid promptly.

Reducing credit utilization is crucial; individuals should aim to keep credit card balances below 30% of their credit limits. Paying down existing balances can quickly improve this ratio. Addressing negative items on a credit report involves disputing inaccuracies with credit bureaus and creditors. Avoiding unnecessary new credit applications can prevent hard inquiries. For those with very limited credit history, options like secured credit cards or credit-builder loans can help establish a positive payment record.