What Is Considered a Bad Credit Score?

The US credit system was designed to determine which US citizens are handling their money responsibly and offer them rewards and extra perks based on performance. As such, it is not inherently bad. However, along the way, it became quite unforgiving. It can be very limiting, and it is not easy to improve one’s credit score situation if it gets too degraded or if you do not have a credit score to begin with.

But, what does it mean to have a bad credit score? Well, to put it simply, the FICO credit score is considered bad if it falls below 670, which would place it in the range of fair or poor credit, depending on what the actual number ends up being. Another model called the VantageScore model considers it bad if your credit score is below 661, with the categories below being fair, poor, or very poor.

Financial service providers in the US, such as lenders, consider these scores to be Subprime scores, and those who have bad credit scores might find it rather difficult to access certain perks and benefits. Not to mention that it is not easy to access credit with more favorable terms. With bad credit, common financial activities become difficult, and things many of us take for granted become unachievable privileges.

For example, opening a new credit card seems like something that should be available for everyone. However, if you have a bad credit score, you simply won’t inspire enough trust in order for card issuers to grant you their credit card. Even if you can get a credit card, you will likely have low limits, higher interest rates, and other disadvantages. Today, we wanted to take a deeper look into this topic and see what impacts your credit score and how you can improve it if you find it in the bad part of the spectrum.

What is a bad credit score?

To understand what is a bad credit score, we must first talk about the two different models that are used to measure one’s credit. These are the FICO Score and VantageScore. Both of these models use the same credit spectrum, which goes from 300 as the absolute worst to 850 as the absolute best score. However, the way they measure what is good and what is bad is slightly different.

FICO credit score, for example, uses the following ranks:

• 300-579 is considered a poor credit score
• 580-669 is considered a fair credit score
• 679-739 is considered a good credit score
• 740-799 is considered a very good credit score
• 800-850 is considered an exceptional credit score

So, to put it simply, if your credit score is 800 or more, all the doors will be open to you, while the situation is completely different for those whose score is under 579. Last year, in 2021, the average FICO credit score was estimated to be at 716, which is considered Good. However, if you happen to end up below 670, in the Fair or Poor category, the score is considered below average and, therefore, bad.

VantageScore has its own ranking that looks slightly different.

• 300-499 is considered a very poor credit score
• 500-600 is considered a poor credit score
• 601-660 is considered a fair credit score
• 661-780 is considered a good credit score
• 781-859 is considered an excellent credit score

It is immediately clear how different the two are, and in 2021, the average VantageScore was at 698. This is deep in the good credit score range, but anything under 660 is considered bad, overall, with three different categories determining just how bad the situation is.

What are the factors that impact the credit score?

Identifying your credit score as good or bad is useful, as you now know what to expect from various financial institutions. However, in order to start fixing the bad credit score, you must first understand what impacts it and in what way.

The first thing to understand is that your credit score is calculated based on your credit report. There are three major credit bureaus, including Experian, Equifax, and TransUnion. Financial institutions that you come into contact with are then reporting to these bureaus, and they are using your information to calculate your credit score.

This information includes the following:

• Credit applications, which is determined by how often you apply for new lines of credit, and it carries 10% of your credit score.
• Credit mix, which represents the mix of credit within your account. The ability to manage multiple credits, such as a car loan, a credit card, revolving credit, installment loans, and more, are beneficial to your overall score. This carries another 10% of your overall credit score.
• Credit history, which represents the length of your involvement with open credit accounts. This represents 15% of your credit score.
• Credit utilization, which is your debt-to-credit ratio, or the current balances compared to how much credit you have available. This is a big factor that represents 30% of your credit score.
• Payment history, which represents your track record and payments timeline. This is the biggest factor that represents 35% of your credit score.

Thanks to the fact that there are five different factors, you can still have a good credit score even if one of these factors is weak. For example, if you are new to credit, your credit history will not be extensive enough for the credit bureaus to have a clear picture of your habits and performance over time. Or, if you have made a late payment in the past then this will also negatively affect your credit score.

What happens if you have a bad credit score?

So, if we assume that your credit score is not that great, what will be the actual consequences? How can it impact your life? Well, as it turns out, the impact can be quite severe, which is why it is extremely important to nurture your credit score as much as possible.

One of the negative consequences will be the difficulty of getting approved for a credit card. The reason for that is the fact that lenders see borrowers with bad credit as a risk, so they are less likely to approve their credit applications. The requirements to qualify for the products of most banks and financial institutions can be quite rigorous, so if your credit score is bad – it will reflect negatively on your odds of getting the approvals you need.

Another negative consequence is getting higher interest rates and more restrictive terms when it comes to credit cards or loans. There are different kinds of lenders out there with different rules and requirements. Some might not be willing to give you a loan at all if your credit score is too low, while others might do it regardless, but the lower credit score will require greater collateral and higher interest rates.

If your credit score is bad, you might also have to pay higher insurance premiums, as most states allow car and home insurance companies to see your credit score and include it in their analysis. So, if your credit score is bad, they consider it an indication of higher risk, which might make your premium significantly higher.

You could face a number of other issues, such as difficulties renting an apartment, struggling to advance your career, or even having to make deposits for utilities. These are not only potential issues — a lot of people with bad credit have to deal with these problems on a daily basis, so it is important to understand that your credit score must be as high as possible in order to have access to benefits and privileges necessary to live a normal life in this day and age.

How to improve a bad credit score?

If your credit score is already bad enough for you to suffer from the previously mentioned issues, you should know that there is still a chance of taking back control and improving your credit score. It will require effort and careful planning, but it is possible through a number of ways.

Your first step will be to get your free credit report and score from each of the three major bureaus and identify what negative information took your score down in the first place. If there are any errors in the reports that might be responsible for your bad score, you should report them to the bureaus and dispute them. Next, you should also avoid making late payments. As we mentioned earlier, payment history makes up more than one-third of your overall credit score, so paying bills and debts on time is crucial for a good foundation of your credit score.

Next, you should try to lower your credit utilization ratio. This is another major factor, and experts recommend using only 30% of your credit limit. Of course, the less you use the better it is, and the highest credit score achievers reportedly use 10% of their credit limit or less, but if you can limit yourself to 30%, that will certainly help your situation a lot.

Another thing to try is becoming an authorized user of someone else’s credit card. This will require huge amounts of trust from the person you ask, so a family or close friends are your best option. You can try explaining to them that you will not even use their credit card account but that just being selected as an authorized user would help your credit score.

One final thing that you could attempt to do is to get approval for a secured credit card. This is pretty much the same as a regular credit card, but with a few downsides. You need to pay a deposit in order for it to get issued, and the size of the deposit is typically what your credit limit is going to be. You will also likely have to pay for an annual fee, and have fewer benefits than what a regular credit card offers. But, using this card sparingly and carefully can do wonders for your credit score, so do consider it.

We offer a list of the Best Secured Credit Cards that you should consider, another options is to simply apply to a credit card issuer that focuses on issuing credit cards to users with poor or bad credit. We feature a list of the Best Bad Credit Credit Cards for users who have poor credit scores.

Conclusion

In the end, a bad credit score, whether with FICO or VantageScore, can make your life quite difficult, with many of the great benefits out of reach. However, all is not lost, as you can bounce back if you work hard on proving your trustworthiness to the credit bureaus. We have explained what to do, how to do it, and all that remains is for you to take the necessary steps.