|Although the three credit bureaus technically determine your score, each lender has its own guidelines according to the level of risk it’s willing to take.|
Many people wonder what a bad credit score is — and the answer is complicated.
Sure, FICO and VantageScore cite credit score numbers that are considered “very poor” and “poor.” But there’s more to it than that — depending on what you’re trying to obtain credit for, a “bad” credit score might be lower (or higher) than you think.
Continue reading to learn what experts consider to be a bad credit score and to find out how your own score compares.
What is a bad FICO score?
FICO scores range from 300 to 850. The higher your score, the better borrower you are considered by lenders. If your FICO score is between 300 and 579, it’s considered “very poor.” A number between 580 and 669 is considered “fair.”
FICO score data is calculated using five categories. Your payment history counts for 35 percent of your score, your amounts owed count for 30 percent, your length of credit history counts for 15 percent, your new credit counts for 10 percent and your credit mix counts for 10 percent.
What is a bad VantageScore?
Like the FICO score, the VantageScore typically uses 300 to 850 as its range. The newer VantageScore models show that a score of 300 to 499 is considered “very poor,” while a score of 500 to 600 is considered “poor.”
VantageScore calculations work a bit differently from FICO calculations. The VantageScore figures your score using the following categories:
- Total credit usage, balance and available credit: Extremely influential
- Credit mix and experience: Highly influential
- Payment history: Moderately influential
- Age of credit history: Less influential
- New accounts opened: Less influential
How a lower credit score can impact you
A bad credit score can result in higher interest rates on your mortgage, car loan and credit cards. It can also affect you in other areas, such as renting an apartment or purchasing a cellphone plan.
“While your credit score may seem to be just a number, not maintaining it can cost you hundreds, if not thousands of dollars in the long run,” says James Lambridis, founder and CEO of DebtMD, a fintech platform that connects people with professionals to help them become debt-free.
And a bad credit score can even affect the amount of any security deposits you might owe when renting an apartment or connecting utilities.
Additionally, a lower credit score will also typically result in higher monthly insurance for car, truck, homeowner and private life insurance premiums.
And more and more financial institutions, including banks and credit unions, are taking your credit scores into account when deciding whether to accept your request for a new checking account.
Although your score is not used during any sort of hiring or job interview process, your credit report can be used, and a lower credit score indicates there is negative activity on your report.
How to improve a bad credit score
Now that you know that a bad credit score is ultimately determined by the lender, it’s important to get your score as high as possible before you start applying for credit. Here’s how:
- Because the amount you owe makes up a big percentage of your credit score, reducing debt can have a positive effect on your credit score.
- Keep an eye on your credit report to protect yourself from identity theft, which can wreak havoc on your score. (You can now request a free copy of your credit report from all three credit bureaus at AnnualCreditReport.com.)
- Shoot for a healthy mix of credit types and avoid applying for credit lines you don’t really need.
- Above all, make your payments on time and, if possible, pay off your credit card balances in full.
No one wants a bad credit score. As you now know, having one can affect your financial health in a number of ways. If your score is low, start now to improve it so you can eventually get better interest rates and loan products. If you do what’s suggested and stick to the plan, these habits will keep your credit score well within the range of good to excellent.