Your credit score can affect your everyday life, from shopping at the grocery store to buying a car or renting an apartment. A credit score is a three-digit number that creditors use to ascertain the likelihood of paying your bills on time. In Canada, a credit score falls between 300 to 900.
The higher your credit score, the better your chances of getting approved for financial products. Keeping a good credit score is one of the ways to build your financial freedom and security. Still, sometimes life has a way of throwing curveballs at you that can negatively affect your financial credibility. In this article, you'll get to know the possibilities and limitations of having a 400 credit score.
What does it mean to have a 400 credit score?
Equifax and TransUnion are two credit bureaus that can calculate your credit score in Canada. While the average score varies from province to province, a score of 400 is a poor credit score. It also signifies that you've had significant payment struggles in the past.
Lenders consider someone with a 400 credit score as a deep subprime borrower. As such, a 400 credit score will make it difficult for you to get approved for a loan, and you may end up paying higher interest rates if you do get approved. Most landlords may deny your application or, you may have to pay a significant security deposit if you try to rent an apartment with a low credit score.
Also, some provinces in Canada allow car insurers to charge high premiums to people with lower credit scores. Employers will do soft credit check on your credit score when hiring, and you could lose an employment opportunity due to a bad credit score. With a good credit score, you can quickly get approved for financial products and save money with lower interest rates. Getting a mortgage for a house or a car can be difficult, if not impossible, with a 400 credit score.
But all hope is not lost. Having a 400 credit score is not the end of the word. You might be able to qualify for a personal loan from an alternative lender. Furthermore, if you take control of your financial situation, you can increase your credit score within a few months. Still, you might be thinking about what you can get with a 400 credit score. Let's look at some of the questions in your mind. Shall we?
Can a 400 credit score get me a car loan?
Yes, you can, but it can be challenging to get a good deal. When getting a car loan, your credit score plays a vital role. Car dealers will have to check your credit history to finance a car in your name. Car lenders will then use your credit score to determine the interest on your car loan.
The good news is there's no minimum credit score for a car loan in Canada today. With a 400 credit score, you can apply for a car loan with a lender that offers low credit car loans. However, it is better to wait to increase your credit score or credit history than get a car loan with a 400 credit score.
Can I buy a house or rent an apartment with a 400 credit score?
You may find it difficult to get most mortgages with a score of 400. Even If you’re happy with renting an apartment, many landlords will run a check on your credit history to ascertain the likelihood of making timely payments. With a credit score of 400, most landlords may doubt your ability to make payments.
Let's look at a few tweaks you can you to increase your chances of being approved for renting an apartment:
- Instead of looking at properties from a property management company, consider renting from an individual landlord. Most property management companies have policies preventing them from leasing to individuals with a lower credit score. But an individual landlord can easily adjust the terms and conditions to consider your application.
- A 400 credit score may not be the true reflection of your ability to make timely payments, and unforeseen circumstances can negatively affect your credit score. You can write to a prospective landlord about why your credit score is low. Who knows, you might get approved.
- You can get someone to cosign the lease with you. This way, the landlord will feel secure since there are multiple ways to recover the finances if you default in making payment.
Can I get approved for credit card with a 400 credit score?
Yes, you can. One of the ways to improve your credit history and show the likelihood of early payments is for you to have a credit card. It is possible to get a credit card with a 400 credit score, but your choice of credit cards will be limited.
You can get a secured credit card even with a bad credit score. However, with a secured card, you'll have to deposit a certain amount with the credit card company, which becomes your credit limit. While it can be frustrating to have to deposit an amount of money just to have a credit card, secured credit cards will help you rebuild your credit history. As a result, if you make your payments on time, having a secured card will help you improve your credit score.
Another option is to get a prepaid credit card, something like KOHO. Prepaid credit cards are an alternative to traditional cards, but it is worth noting that it does not improve your credit score. Instead, it allows you to shop with a credit card from your available funds. You have to pre-load funds and spend from them. There are different prepaid credit cards in Canada; ensure you identify the one that suits your needs before getting one.
How to bounce back from a 400 credit score
It might seem like all odds are stacked against people with a low credit score due to their poor credit history. But, the good news is that with the right practices, you can increase your credit score within a short time. Below are a few things you can do to improve your credit score;
- Timely payments: Your payment history plays a vital role in determining your credit score, and each month offers you an opportunity to gradually clear off poor credit history when you make payment on time.
- Get a secured credit card: You can get a secured credit card to help with your daily purchases. There is a certain deposit on the card, which sometimes can be a fraction of the credit requested. Don't spend more than thirty percent of your credit limit. Every transaction made with the secured credit card is sent to credit bureaus, thereby building your payment history and improving your creditworthiness.
- Check your credit history: You can get copies of your credit report directly from the credit bureaus in Canada, as well as from free credit morning services such as Borrowell and Credit Karma. Ensure all the information there is correct. You can file a dispute if there's a mistake in your credit report.
- Get credit counseling: if you're having difficulty paying off your credit card debt, you can opt for a credit counseling session. Where you get information on your finances and explore available options for paying off your debts. You need to know your monthly income, then get your current credit card and loan statement before proceeding with a credit counseling session.
- Start afresh by filing bankruptcy: It might be challenging to continue servicing your loans while trying to come out of debt. Bankruptcy may be your last resort. There's no point hanging onto debts you can't fully repay; you may not be able to rewrite your credit history.
Although a low credit score limits your access to getting loans, it's good to know that you can improve your credit score. If your credit score is 400, work towards increasing it by considering various factors. Take time to review your finances and find out the root cause of your low credit score. Then, avoid debts if possible and get credit cards that would help improve your credit history. Do not be discouraged by your 400 credit score; reach out to a credit counselor for support and assistance. There is hope for you.
- Monitor and track your credit score for free
- Learn about credit easily on the blog
- Get access to the credit builder*