405 Credit Score: Is it really that bad?

by Stable MARK | Updated: August 17, 2022
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Unfortunately, a credit score of 405 is very low. It's classified as “poor” or “very poor” by every major credit scoring company. With a score like this, it will be nearly impossible to get a mortgage, a car loan, or an unsecured credit card.

If you have a credit score of 405, it's important to take steps to improve your credit rating. In this article, we'll go over some of the best ways to do that. By following our advice, you can improve your credit score and get access to better financial opportunities in the future.

A 405 credit FICO score
Figure 1: 405 falls within the FICO credit score range concidered poor or very poor

17% of consumers have FICO® Scores in the Very Poor range (300-579).

Although a 405 credit score is technically a bad credit score, it's not as bad as it could be. It's only few point away from the lowest possible credit score (300), and far from the highest (850). A low credit score like this usually indicates that you've had payment problems in the past, such as bankruptcy or foreclosure. This signals risk to potential lenders, which makes it difficult to qualify for a loan or unsecured credit card. However, you can improve your chances by focusing on rebuilding your credit reputation before trying to get a mortgage, car loan, etc.

How to improve your 405 credit score

Your FICO® Score of 405 is lower than the average credit score of 711, but that doesn't mean there's no hope for improvement. One smart way to start increasing your credit score is to obtain your FICO® Score report. This report will not only tell you your personal credit score, but it will also spell out the main events in your credit history that are negatively affecting your score. Having this information can be very helpful in pinpointing the issues you need to work on to raise your credit score.

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97% of customers have FICO® Scores higher than 405

How to build a better credit score

If your FICO® Score falls in the very poor range, it's often a reflection of past credit missteps or errors. These can include multiple missed or late payments, defaulted or foreclosed loans, and even bankruptcies. However, your FICO® Score report can help you prioritize which credit missteps you should address first. Additionally, it's always a good idea to get your credit reports from all three national credit bureaus: Experian, Equifax and TransUnion. Familiarizing yourself with their contents can help you better understand the missteps in your credit history, so you'll know what to avoid as you work to build up your credit. If you develop better credit habits overall, you'll likely see improvements in your credit scores.

Of consumers with FICO® Scores of 405, 14% have credit histories that reflect having gone 30 or more days past due on a payment within the last 10 years. This shows that these consumers are reliable and trustworthy. They are the perfect candidates for credit products.

What makes an impact on your credit scores

If you have bankruptcies or other public records on your credit report, it's important to take care of them as soon as possible. Settling liens or judgments can reduce their impact, but in the case of bankruptcy, only time will lessen the harmful effects on your credit scores. A Chapter 7 bankruptcy will remain on your credit report for up to 10 years, and a Chapter 13 bankruptcy will stay there for 7 years. Even though your credit score may begin to recover years before a bankruptcy drops off your credit file, some lenders may refuse to work with you as long as there's a bankruptcy on your record. So it's in your best interest to take care of any public records on your credit report as soon as possible.

The average credit card debt for those with FICO® Scores of 405 is $7,658

It's important to keep your credit utilization rate below 30% to avoid hurting your credit score. This number is determined by dividing your outstanding balance by your credit limit and multiplying it by 100. You can calculate your overall utilization rate by adding up the balances on all your credit cards and dividing them by the sum of their borrowing limits. The utilization rate contributes as much as 30% of your FICO® Score, so it's definitely something you want to keep an eye on.

Paying your bills on time is the best way to promote a good credit score. This can make up for more than one-third of your FICO® Score.

If all other things are equal, a longer credit history will tend to give you a higher credit score than a shorter one. The number of years you've been using credit can affect up to 15% of your FICO® Score. If you're new to the credit market, there's not much you can do about this factor. But if you're patient and careful to avoid bad credit behaviors, your score will improve over time.

While your credit score is influenced by your total outstanding debt, the types of credit you have also play a role. The FICO® credit scoring system usually favors users with multiple credit accounts and a mix of revolving credit and installment credit. So if you only have one type of credit account, you could improve your credit score by adding more diversity to your portfolio. Credit mix is responsible for up to 10% of your FICO® Score.

If you're looking to maintain a good credit score, it's important to be mindful of your credit activity. Applying for multiple loans or credit cards in a short period of time can hurt your score. This is because each time you apply for credit, the lender will do a hard inquiry on your report. A hard inquiry is when a lender looks at your credit score (and often your credit report) to decide whether or not they want to lend to you. While hard inquiries can cause your score to drop a few points, it usually rebounds within a few months as long as you keep up with your bills and avoid making any more loan applications. (Checking your own credit is considered a soft inquiry and doesn't impact your score.) New credit activity can make up for 10% of your FICO® Score.

Improving your credit score

If you have a very poor credit score, it's important to know that you can't convert it to a good or even fair score overnight. It takes time and patience to improve your credit. However, if you start developing habits that promote good credit scores, you can start to see some steady improvements within a few months. Here are some good starting points:

Pay on time

Paying your bills on time is one of the most important things you can do to maintain good credit scores. Every time you make a payment on an account that reports to the three main consumer credit bureaus, you're helping to build a positive payment history.

If you accidentally make a late payment, call your lender right away. They may be able to help you resolve the issue before it's reported to the credit bureaus. But if it's already been reported, it can be difficult to remove it from your credit reports.

Keep your balances low

Keeping your credit card balances low can help improve your credit utilization rate - that is, how much of your available credit you're using at any given time.

Most experts recommend keeping your balance below 30% of your credit limit. That's a good rule of thumb to follow. But if you can manage to keep your utilization rate even lower than 30%, that's even better.

There's no credit-building benefit to carrying a balance on your cards if you can afford to pay off the full balance each billing cycle. So when it comes to credit-building strategies, it's best to make consistent charges to the account while keeping the total amount owed under 30% of your credit limit. If you can, pay off your statement balance in full and on time each month so you don't get charged interest on those purchases.

Debt-management plan

If you're struggling to repay your loans and credit cards, a debt-management plan could be the answer. You work with a non-profit credit-counseling agency to create a manageable repayment schedule. When you enter into a DMP, all your credit card accounts are effectively closed. This can cause your credit scores to go down, but they will rebound more quickly than if you declare bankruptcy. If this sounds too extreme for you, you can still consult a credit counselor (not a credit-repair outfit) to devise a plan for improving your credit.

Credit-builder loan

Credit unions offer small loans designed to help their members build or rebuild their credit. One of the most popular types of credit-builder loans works like this: the credit union issues you a loan and places the money in an interest-bearing savings account. Once you've paid off the loan, you get access to the money plus the accumulated interest. This loan can be a great way to improve your credit score, as long as you make regular, on-time payments. (Before obtaining a credit-builder loan, make sure the credit union reports payments to all three national credit bureaus.)

Apply for a secured credit card

A secured credit card is a great way to improve your credit score. You put down a deposit in the full amount of the credit limit, which is typically just a few hundred dollars. As you use the card and make regular payments, the lender reports those activities to the national credit bureaus. This is reflected in your credit files and FICO® Scores. By making timely payments and avoiding "maxing out" the card, you can see improvements in your credit score.

Credit cards and loans with a 405 credit score

Although it may be difficult to borrow money with a 405 credit score, it is still possible to get a student loan. A very small percentage of other types of loans and lines of credit have been opened by people with credit scores below 540, dating back to 2008. In particular, you're unlikely to qualify for a mortgage with a 405 credit score because FHA-backed home loans require a minimum score of 500. However, your odds are higher with other types of loans.

Credit Cards For Poor Credit Score

Suitable For
Capital One Platinum Secured Credit Card
rebuilding credit
Capital One Platinum Secured Credit Card
Mission Lane Visa® Credit Card
low annual fee
Mission Lane Visa® Credit Card
Discover it® Secured Credit Card
secured card with rewards
Discover it® Secured Credit Card
Self-Credit Builder Account with Secured Visa® Credit Card
building credit with savings
Self-Credit Builder Account with Secured Visa® Credit Card
OpenSky® Secured Visa® Credit Card
low-interest credit-building
OpenSky® Secured Visa® Credit Card
Discover it® Student Cash Back
rotating cash-back bonus categories
Discover it® Student Cash Back
Milestone® Mastercard®
fraud protection
Milestone® Mastercard®
Indigo® Mastercard®
bankruptcy forgiveness
Indigo® Mastercard®

Store credit cards

Store credit cards typically offer incentives to shop at a particular retailer. This type of card can be secured or unsecured, so it’s technically not a third category. But store credit cards are worth talking about as an option if you’re building credit.

If you have poor credit, you might have a better chance at getting approved for a store credit card. The potential downside is that these cards tend to come with high interest rates, and you may only be able to use them at a specific store. However, they might offer rewards and benefits that make sense if you already shop at the store in question. Therefore, it could be worth your while to apply for one of these cards.

If you've looked into all of your credit card options and can't seem to find one that you can get approved for, there are other options available to you. One option is to ask a family member or trusted friend to add you to their credit card account as an authorized user. But before you do that, it's important to familiarize yourself with the pros and cons of being an authorized user on a credit card.

Unsecured credit cards

An unsecured credit card doesn't require a security deposit, which can be helpful if you're short on cash. However, these cards typically come with an annual fee, which can be worse than a security deposit because it's usually nonrefundable. You may also face higher interest rates.

Secured credit cards

If your credit still needs some work, applying for a secured credit card might be your best bet. With a secured card, you’ll pay a security deposit upfront, which typically sets your credit limit. So if your security deposit is, say, $400, your credit limit may also be set at $400. This gives the issuer some insurance in case you close the account without paying off your debt.

Because secured cards pose less of a risk for credit card issuers, they may be more readily available to someone with poor credit. And a secured card can benefit you as a borrower by helping to improve your credit score if the lender reports your on-time payments and other credit activity to the three main credit bureaus.

Personal loans with a 405 credit score

It may be challenging to get approved for a personal loan with poor credit scores, but it's not impossible. And even if you don't have the best credit, you can still find personal loans with reasonable interest rates and fees.

A personal loan could be a great option for consolidating high-interest credit card debt. The APR on your personal loan could be lower than the interest rate you're currently paying on your credit cards. So, even though you might have to pay a higher interest rate than someone with good credit, a personal loan could save you money in the long run.

If you're considering taking out a personal loan, you should first ask yourself whether you really need the money right now. If you can wait awhile and build up your credit, you may be able to qualify for a personal loan with a lower APR and better terms down the road.

If you're in a tight spot and having difficulty finding a personal loan you qualify for, you might be tempted to take out a payday loan. However, you should be aware that these short-term loans come with high fees and interest rates. They can quickly become a cycle of debt that's even harder to break out of.

Auto loan rates for poor credit

Even though there's no specific minimum credit score required to get a car loan, it can be difficult to get approved if your credit is poor. And even if you do get approved, the interest rates will be high, which can make it very expensive to borrow money. So be careful if you're considering an auto loan with poor credit.

If you have time to build your credit before you apply for a car loan, you may eventually be able to get better rates. But if you don’t have time to wait, there are some strategies that can help you get a car loan with bad credit.

Consider finding a co-signer if you have a trusted family member or friend with good credit who is willing to share the responsibility of a car loan with you. Seek out alternative lenders, such as a credit union or an online lender. Ask the dealership if there’s a financing department dedicated to working with people with poor credit. Use buy-here, pay-here financing only as a last resort.

Benefits of improving your score to:

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