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- A bad credit score with FICO is below 670, while a bad VantageScore credit score is below 661.
- Bad credit results from negative information on your credit reports, such as delinquencies and bankruptcies.
- A bad credit score will make you less likely to qualify for loans and will increase your interest rates.
A credit score reflects your trustworthiness as a borrower, expressed as a three-digit number ranging from 300 to 850. Lenders equate higher scores with lower risk and lower scores with higher risk. Scoring models, such as FICO and VantageScore, use data from your credit reports to calculate your scores and provide them to lenders when you apply for credit.
The best borrowers have a long history of on-time, consistent payments. Consequently, if you’re starting your credit journey or missed a loan payment or two, you will not be viewed favorably. Your credit score will reflect this, resulting in worse rates and more expensive loans. That said, credit scores have steadily risen over nearly two decades, though as of April 2022, 24.3% of people still have credit scores below 649, according to FICO.
Credit scores are rising, in part, due to the abundance of information available to consumers. You can also employ various services that can help you along the way, keeping tabs on your credit reports. You can find the best credit monitoring services here.
This article is a great place to start your credit journey. See what constitutes a “bad” credit score and what that means for you as a borrower.
What Is a Bad Credit Score?
A bad credit score, also called a sub-prime credit score, is any credit score that falls below the “good” risk category, which varies slightly between FICO and VantageScore, the two primary scoring models used to calculate credit scores. A low credit score results from harmful information on your credit report, such as a late payment or delinquency on your credit report.
What is a bad FICO credit score?
FICO breaks its risk categories into the following:
- Poor: Below 580
- Fair: 580-669
- Good: 670-739
- Very good: 740-799
- Excellent: 800 and above
Under FICO, any credit score below 670 is considered a bad credit score or a subprime credit score.
What is a bad VantageScore credit score?
VantageScore breaks borrowers into the following risk categories:
- Very Poor: Below 499
- Poor: 500-600
- Fair: 601-660
- Good: 661-780
- Excellent: 780-850
A bad VantageScore credit score is under 661, slightly more generous than FICO. VantageScore isn’t used as often as FICO in lending decisions.
What’s the Difference Between Having a Bad Credit Score and No Credit Score?
If you have no credit score, you don’t yet have any credit history with the three major credit bureaus — Equifax, Experian, and TransUnion. On the other hand, if you have a bad credit score, you have a credit history, and one or more factors on your credit file are holding your score back.
A credit delinquency, a loan or credit card payment over 30 days late, will stay on your credit report for seven years before falling off. A bankruptcy will remain on your credit report for 10 years before falling off. Until these fall off, delinquencies and bankruptcies will continue to slow any progress you make toward building credit.
That’s why having no credit score is, in many ways, better than having a bad credit score because you’re starting from a clean slate. However, getting approved for credit can still be challenging when you have no credit score since lenders won’t have any credit history on which to base an approval decision.
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How Can a Bad Credit Score Impact Your Life?
A bad credit score can make it more difficult to get approved for any credit from lenders. This includes revolving credit, like credit cards, and installment loans, like mortgages and auto loans.
For example, home buyers need a credit score of at least 620 to qualify for a conventional loan mortgage, though you’d ideally have a 740. And Experian’s latest State of the Automotive Finance Market report found that new car buyers who took out a loan or lease in the third quarter of 2022 had an average credit score of 738.
Even if you can get approved for a loan with a bad credit score, you’re unlikely to qualify for the best rates. For example, new car buyers in Q3 2022 whose credit scores fell within the super prime range (781-850) received an average interest rate of 3.69%, while the average rate for car buyers with subprime (501-600) scores was 10.11%.
Finally, your credit score can impact your application for services outside the credit industry. According to the FTC, landlords, insurance agencies, utility providers, and even employers may check your credit to gauge if you’re a reasonable risk.
How Can You Repair a Bad Credit Score?
The first step towards fixing a bad credit score is to check your credit report to see what’s holding your score back. As a result of the pandemic, you can check your credit score free once per week through the end of 2023 at AnnualCreditReport.com. If errors on your report are hurting your score, you have the right to dispute them and request their removal.
If any adverse information is accurately reported, your last resort to get any late payments removed quickly is to make an appeal with your creditor through a goodwill adjustment letter. Creditors have the power to remove any late payments they reported to the credit bureaus, but they can also refuse to make any changes. A goodwill adjustment letter has a better chance of working if you have an otherwise stellar payment history.
If neither works, you’re stuck with the negative information until it ages off your credit report. Your only option is to build positive information on top of the adverse history. Think of this like rebuilding your grade in a class after you flunk one test.
You can look into credit-builder products like secured credit cards or credit-builder loans, which are available to people with bad or no credit. These help build payment history even if you don’t have the credit score to take out traditional loans or credit cards. You can look at Insider’s best credit cards for bad credit and best credit builder loans for the right fit. You can also have a close friend or family member add you to their credit card as an authorized user.
Even with these options, repairing a bad credit score will take time. Payment history is a significant credit score factor in FICO and VantageScore’s scoring models. You will need to build a positive payment history, which means consistently paying all your bills on time.
You’ll also want to pay attention to how much of your available credit you’re using each month. A lower credit utilization ratio generally has a positive impact on your score. Limiting your hard credit inquiries can also help to rebuild a bad credit score.
Finally, should consider seeing a credit counselor to get personalized advice on how to manage your debt and rebuild your credit. You can use the locator tool from the National Foundation for Credit Counseling (NFCC) to find an accredited counselor near you.
Bad Credit Score Frequently Asked Questions (FAQ)
VantageScore and FICO keep their official credit scoring algorithms a secret from the public. Still, we have a general sense of the factors that go into your credit score and how heavily they’re weighed in the calculation. FICO and VantageScore vary their calculations slightly.
Your VantageScore is made up of the following:
- Your payment history (40%)
- Length and types of credit (21%)
- Credit utilization (20%)
- Credit balances (11%)
- Recent credit applications (5%)
- Available credit (3%)
The main factors in a FICO score are:
- Your payment history (35% of your score)
- Credit balances (30%)
- Length of credit history (15%)
- New credit (10%)
- Mix of credit accounts (10%)
A fair credit score, between 580 and 669 for FICO and 601 to 660 for VantageScore, is considered subprime. This doesn’t necessarily make your credit score bad, but the rates you qualify for won’t be stellar because lenders will view you as a greater risk.
Most financial institutions, such as banks and credit card companies, will let you see your credit score for free. That said, you can also sign up for free credit monitoring services that will provide you with your credit score. Be mindful of which credit score you’re viewing, noting the scoring model and credit bureau it’s coming from. Ideally, you want to keep tabs on your credit score from all three bureaus.