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Many people wonder what is a bad credit score and the answer is complicated.
Of course, FICO and VantageScore give credit score numbers that are considered “very bad” and “poor”. But that’s not all – depending on what you’re trying to get credit for, a “bad” credit score can be lower (or higher) than you think.
Keep reading to find out what experts consider a bad credit score and 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 is considered “very poor”. A number between 580 and 669 is considered “fair”.
FICO score data is calculated using five categories. Your payment history is 35 percent of your score, your debt is 30 percent, your credit history is 15 percent, your new credit is 10 percent, and your credit balance is 10 percent.
What is a bad VantageScore?
Like the FICO score, VantageScore typically uses a range of 300 to 850. 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 little differently than FICO calculations. VantageScore calculates your score using the following categories:
- Total credit usage, balance and available credit: Extremely influential
- Credit mix and experience: Very influential
- payment history: Moderately influential
- Age of credit history: Less influential
- New accounts opened: Less influential
How a low credit score can affect you
A bad credit score can lead to higher interest rates on mortgages, auto loans, and credit cards. It may also affect you in other areas, such as renting an apartment or buying a cell phone plan.
“While your credit score may seem like just a number, not meeting 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 get out of debt.
And a bad credit score can even affect the amount of security you can pay when renting an apartment or connecting utilities.
In addition, a lower credit score also typically results in higher monthly insurance premiums for auto, truck, homeowner and private 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 recruitment or interview process, your credit report may be used and a lower credit score indicates 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 the highest possible score before you start applying for a loan. Here’s how:
Nobody wants to have a bad credit score. As you now know, having it can affect your financial health in several ways. If you have a low score, start improving it now so you can end up with better interest rates and loan products. If you do what is suggested and stick to the plan, these habits will keep your credit score in the good to excellent range.