When your credit score is on the low side, it’s often a struggle to qualify for a mortgage or a rewards credit card. Not only that, but you’ll typically pay higher interest rates and fees even when you are approved to borrow the money you need.
Getting out of debt can also be more difficult when your credit is poor, mostly because you may not be able to consolidate your debt at a lower interest rate. The reality is that, like it or not, most balance transfer credit cards that extend 0% APR introductory offers require good or excellent credit to qualify. This leaves many borrowers stuck between a rock and a hard place.
As you look for ways to consolidate debt at a lower rate, consider these tips.
Confirm Your Credit Score
First, you should never assume your credit score is awful until you have taken the time to check it out for yourself. The good news is, there are plenty of easy ways to access your credit reports and your credit score for free.
For example, you can see your credit score by signing up for a free account with a credit monitoring service. Discover provides a “Credit Scorecard” that includes a FICO score based on information from your Experian credit report—and you don’t have to have a Discover credit card to sign up. American Express (MyCredit Guide), Capital One (CreditWise), and Chase (CreditJourney) offer similar services.
Credit Score Ranges
Your credit score is typically displayed as a three-digit number between 300 and 850, as is the case with the FICO score—one of the most popular credit scoring models. Once you are able to see your score, you’ll know for sure where you stand. With FICO Score 8 (the most widely used), here’s how the ranges break out:
- Exceptional: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 579 and lower
Take the time to check your credit history for free by visiting AnnualCreditReport.com. If you find any errors, especially negative ones, make sure to dispute them so the credit bureaus can correct your reports.
Perhaps your credit score isn’t as low as you thought. In that case, you may be able to qualify for a credit card that accepts applicants with “fair” or “average” credit and allows balance transfers.
Options for Fair Credit
While there are several credit cards that fall into this category, most don’t typically offer the most generous balance transfer terms. With “fair” credit you should have have no trouble finding a card that charges interest in the low- to mid-20s, for example, albeit with no balance transfer fee. There are even balance transfer cards that offer promotional 0% interest on balance transfers for a year or more, although you’ll need to carefully consider other card terms. For example, a “fair” credit score may affect the issuer’s determination of the card’s credit limit, which may not be high enough to accommodate a significant amount of your debt.
Also remember that good credit may not be entirely out of reach, and that small steps you take now can improve your credit score in the future.
How Credit Scores Are Calculated
First, it’s important to know how credit scores are calculated. With the FICO scoring model, your score is determined using the following factors:
- Payment History: 35%
- Amounts Owed: 30%
- Length of Credit History: 15%
- New Credit: 10%
- Credit Mix: 10%
Looking at these percentages shows you right off the bat how to make some headway. Since payment history is the largest component of your FICO score, you should strive to pay all your bills on time each month and make it a priority to get any delinquent debts up to date. You should also pay down as much debt as you can in order to decrease your credit utilization ratio.
Utilization ratio is the percentage of available credit you have already used. For example, if you have a credit card with a $2,000 credit limit, and a balance of $1,000, your utilization ratio is 50%. In general, the lower the ratio, the better your credit score will be.
Beyond these steps, avoid opening or closing too many credit card accounts. That way, you don’t add unnecessary hard inquiries to your credit report. You also don’t want to close older accounts that may be helping to lengthen the average length of your credit history.
Most of all, it takes time to improve a credit score. The earlier you start, the sooner you will get there.
Ways to Improve Credit
If you need some time to improve your credit so you can qualify for a balance transfer card, there are other steps you can take in the meantime.
The following strategies can also help you pay down debt:
- Consider a debt consolidation loan: It may be difficult to get approved for a personal loan with the best rates and terms when your credit isn’t great. But shop around and compare loans to see what is available. Some online lenders even let you get prequalified and see your rate without a hard inquiry on your credit report.
- Try the debt snowball: Consider paying off your debts using the debt snowball method. This strategy has you pay as much as you can toward your smallest debt balance until it’s gone, along with the minimum payment on your other debts. As each of your smaller debts disappears, you’ll “snowball” those payments toward the next largest debt. Eventually, you’ll only be left with your largest debts, then one debt, and ultimately, none.
- Work the debt avalanche instead: The debt avalanche method has you pay as much as you can toward the debt with the highest interest rate until it’s gone. In the meantime, you’ll continue making minimum payments on the rest of your debts. As balances with the higher rates disappear, you’ll “avalanche” those payments toward the debt with the next highest interest rate, until that’s gone too. Eventually, you’ll be left with debts at the lowest interest rates, and then ultimately, you’ll be paid off.
Use our personal loan calculator to compare how much you'd pay monthly on a consolidation-focused personal loan, even with bad credit. You can then compare that amount (and how long it would take to pay off your debt) to a balance transfer card's monthly payment—just remember that 0% and low-rate balance transfer card rates only last for a limited amount of time.