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    What’s Considered a Bad Credit Score?

    Lyn Ridley
    Lyn Ridley - 2019-12-13T22:00:00.000Z

    A bad credit score is bad news for your next credit card or loan application - and it could even prevent you from getting certain types of jobs.

    Still, there’s some good news too. There are ways of improving your score.

    If your FICO score or VantageScore could do with a boost, read on to get the know-how needed to improve it.

    What is a Credit Score?

    In a nutshell, your credit score is like a grade on your financial report card that tells creditors and lenders how good you are at paying your bills.

    The higher your score, the better.

    • When you apply for credit, your name and identity are checked against a database of consumers by the three main credit bureaus - Experian, TransUnion and Equifax.
    • These agencies use two types of scores (FICO and VantageScore) that indicate to credit providers how reliably you pay your installments and how much of your total credit limit you’re using.

    There are other factors that go into calculating your score too, and we’ll cover them in detail below.

    To qualify for credit and enjoy competitive APRs - and avoid having to pay high security deposits - you’ll want to keep your credit score as high as possible.

    Consumers are entitled to a free credit report each year and you can get yours at: www.annualcreditreport.com.

    What Are The Different Levels of Creditworthiness?

    Earlier, we mentioned that there are two main types of credit scores: FICO and VantageScore.

    Both of these scores use a multi-level system that divides credit scores into different categories rated from poor to excellent.

    Knowing what category your credit score falls under will give you an idea how good your credit is and how favorable your APR may be.

    Both FICO and VantageScore use a scale from 300 to 850, but their categories of creditworthiness are calculated a little differently.

    The different credit score categories and their impact on your credit applications are shown in the table below.

    Credit Score (FICO)RatingCredit Score (VantageScore)RatingChance of getting approved
    300-579Very poor300-499Very poorLow - may be rejected or required to pay a security deposit
    580-669Poor500-600PoorLow to fair
    670-739Fair601-660FairReasonably good
    740-799Good661-780GoodVery good
    800-850Excellent781-850ExcellentIdeal credit customer
    • Both types of credit scores start at 300, which is a very poor score.
    • It may not be possible to get credit with a score in the “very poor” range or you may need to pay a sizable deposit.
    • VantageScore divides its low credit score into two categories: very poor and poor, which span the 300-600 range collectively.
    • VantageScore scores from 601-660 and FICO scores from 580-669 are considered fair, and 600 is really the minimum credit score you’ll want to aim for to be considered for most types of credit approval.
    • FICO divides its good credit score range into the “good” and “very good” categories. As your score moves up through these categories you can expect more credit approval and better APRs. The same is true of VantageScore scores of 661-780.
    • Finally, if you have a FICO score of 800-850 or 781-850 on the VantageScore scale, you’re in the top category for creditworthy borrowers. You should be able to qualify easily for credit and secure competitive APRs

    How are Credit Scores Calculated?

    Now that you know what the different categories of creditworthiness are, you may be wondering how the credit bureaus calculate your score in the first place.

    Here’s how it works.

    When calculating credit scores, credit bureaus take the following into consideration:

    • Payment history - do you pay your credit card, loan and other installments on time every month, or have you made late payments in the past?
    • Credit utilization - are your credit cards maxed out, or do you only use a moderate amount of your available credit balance?
    • The number, age and type of credit accounts you have
    • Total debt - the amount you owe across all sources of credit
    • Bankruptcies and other public records
    • Recently opened credit accounts
    • Hard inquiries on your credit report

    As with your credit score, FICO and VantageScore take all of these factors into account but they weigh them slightly differently as per the table below (please note that none of these levels are absolute and may vary by credit bureau).

    Credit ScoreMost ImportantModerately ImportantLess Important
    FICOPayment History (35%)Total debt (30%), followed by credit history (15%)Recent credit accounts opened and inquiries (20%)
    VantageScorePayment History (35%)Credit history (15%), followed by total debt (35%)Recent credit accounts opened and inquiries (20%)

    Payment history is the most important factor for both types of credit score, counting roughly 35% of your score.

    This is followed by credit utilization (30%), credit history (15%), your mix of credit types (10%), and recent credit inquiries (10%).

    FICO may consider your total debt to be slightly more important than the length of your credit history, while the opposite is true for VantageScore.

    Still, these factors are both important elements in determining your credit score.

    What is the Impact of a Bad Credit Score?

    Having a bad credit score could restrict your access to credit cards, mortgages, personal loans, and other borrowing or financing opportunities.

    Here are some of the disadvantages of having a poor credit score.

    • Your credit card applications may be rejected
    • If accepted, you may have to pay a high APR and be given a low credit limit
    • You may not qualify for a mortgage, especially for an FHA mortgage where a credit score below 580 raises your down payment from 3.5% to 10.0%
    • If you’re seeking to rent a home, your rental application may be outright rejected or see your rental deposit increased if you’re seen as a credit risk
    • A low credit score may prevent you from being hired for certain jobs, especially those involving financial management

    Having a bad credit score is never desirable but fortunately there are ways to increase it.

    5 Simple Steps You Can Take To Improve A Bad Score

    Improving your credit score is straightforward but does take time.

    If you manage your credit in a way that credit bureaus view as responsible, your score will increase over time and open up the opportunities that come with access to credit.

    Here’s your credit score boosting checklist.

    1. Pay your credit installments on time: Late payments and skipped payments all reduce your credit score.
    2. Pay your debt down: Ideally, you should use no more than 30% of the available balance on your credit accounts.
    3. Go easy on hard inquiries: Every time you apply for credit, a hard inquiry is made on your credit report. Too many of these can reduce your credit score.
    4. Consider using Experian Boost or a similar service: This will allow you to select a credit account you manage well and have it count towards your credit score.
    5. Negotiate with your creditors: This is especially useful for federal student loans which sometimes have flexible payment options.

    Key Takeaways

    A bad credit score can be a hindrance but is definitely something you can overcome.

    Paying your debts on time, paying down your total debt, and going easy on new credit applications are essential steps on the journey towards better credit.

    By managing your debt like a pro, you’ll build a good credit score and reap the benefits for years to come.