What Is Considered a Bad Credit Score?

Kim Franke-FolstadUpdated June 4, 2021

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

You’ve probably seen commercials that refer to “bad” credit scores and the trouble they can cause for borrowers.But what, exactly, is considered a bad credit score? Is there a definitive number that tells potential lenders and others that you might be a financial risk?The commercials usually don’t tell you that, and there’s a reason: A credit score is a tool lenders use to help gauge how much risk they’re accepting if they decide to work with a borrower. But lenders and credit card issuers may also use their own guidelines to determine creditworthiness. So a score that looks OK to one lender might not be good enough for another. Generally, though, the lower a person’s credit score, the more likely it is that a lender will decide that person is a risk. When people are applying for credit cards, car loans, private student loans, and mortgages, credit score is relevant. On its scale of 300 to 850, FICO® considers a score below 580 to signify poor credit.

What Determines a Low Credit Score?

Credit scores are calculated with an algorithm that uses data from a consumer’s credit report issued by a credit bureau—usually Equifax, Experian, or TransUnion. The bureaus issue credit reports to lenders, insurers, and other businesses that are legally permitted to ask for the information. Because the data in each bureau’s credit report may be different, the scores generated from each could also differ. You might have a “fair” score based on one report, for example, and a “poor” score based on another. The credit score ranges that are used to define good and bad credit can also vary, depending on the scoring model that’s being used. The scores you probably hear about most come from the Fair Isaac Corporation and are called FICO® scores. But you might also see scores from a company called VantageScore.

FICO® Score Ranges

Here’s how FICO® scores are typically categorized:

Poor: 300-579
Fair: 580-669
Good: 670-739
Very Good: 740-799
Exceptional: 800-850

VantageScore Ranges

This is how VantageScore sorts its scores, which also range from 300 to 850:

Subprime: 300-600
Near Prime: 601-660
Prime: 661-780
Super Prime: 781-850

How Can You Learn Your Current Credit Score (or Scores)?

It’s important to remember that your credit score isn’t set in stone. Your score may change as the information in your credit reports changes, for better or for worse. That’s why it can be a good idea to check your scores regularly, and to look at your credit reports at the different credit bureaus to be sure the information is accurate.Depending on your accounts, you may be able to access your credit score for free by logging into your credit card or bank account online; by using your financial institution’s app; or by checking your monthly loan, credit card, and bank statements.If you can’t get the information through one of your accounts (or even if you can), you may want to consider using a credit monitoring service to stay on top of your score. Besides helping individuals and businesses track and potentially improve their credit scores, a monitoring service can serve as an extra line of defense against identity theft. It also can be helpful to get copies of your credit reports to be sure the information is up to date and accurate. Credit reports from the three credit bureaus usually don’t include credit scores, but because the information they contain is used to calculate credit scores, it’s a good idea to review your reports and fix any inaccuracies quickly. Normally, you can request a free report annually from each credit bureau at the federally authorized site www.annualcreditreport.com. However, because of the toll the coronavirus pandemic has taken on so many people’s finances, you can now get free reports weekly through April 2022.

How Could a Poor Credit Score Affect You?

A bad credit score can have several negative consequences.Having very poor credit could affect your ability to be approved for certain credit cards (especially those that have perks) and some loans. And even if a lender does approve you when you have a score that falls in the lower range, the terms you’re offered may not be as appealing as those you’d have gotten with a higher score. The amount of credit that’s extended could be lower, for example, or you might have to pay a higher interest rate or higher fees. Borrowers who can’t qualify for an account with any mainstream source may feel forced to ask a relative or friend for the money they need, or to seek funds from a payday loan office or pawn shop. And there could be an especially high price to pay for those types of loan—both emotionally and in interest. The ramifications for poor credit can also extend beyond borrowing.

Landlords often check credit scores as part of the application process. If a landlord or rental company decides your bad credit makes you a risk, you might be denied a lease or asked to provide a larger security deposit. According to Experian, a FICO® score of 620 is frequently the cut-off point for approving potential renters.
Utility companies—including water, gas, electric, phone, cable, and internet companies—may also ask for a deposit before providing services. And auto and homeowner’s insurance providers may charge higher premiums if your credit score is low.
Looking for a job? Employers sometimes check a job candidate’s credit report (with permission) to see if the individual is fiscally responsible.

How Can You Improve a Bad Credit Score?

The sources that typically provide credit scores to consumers (financial institutions, credit monitoring services, et cetera) often list the factors considered in arriving at the credit scores that had a negative influence on the reported score. It could be that even though you’re paying your bills on time, your credit card balances are too close to your credit limit. Or maybe you have too many new credit cards or too much debt overall.If you want to get an idea of what behaviors you might need to adopt to improve your credit score, here’s a list of what FICO® looks at when determining a credit score:

Payment History (35%)

Because a consumer’s payment history can be a strong predictor of his or her behavior going forward, this is the biggest factor in determining a FICO® score. Paying on time can help your score; missing payments can hurt it.

What You Can Do

Your score can go up or down based on recent activity, so consistency is key. Try to make paying bills on schedule a priority. You may want to consider setting up automatic payments for bills you pay regularly (car loan and house payments, utilities, et cetera). And you could create payment reminders through your credit card issuer or a calendar app. If you share costs with a partner or roommate, make a plan together to be sure those bills don’t fall through the cracks.Finally, if your debt seems insurmountable, don’t ignore it. You can always try calling a creditor to talk about how you can get back on track. Or, if you take action before your credit score drops, you may find a personal loan that can help consolidate your bills into one more manageable payment per month.

Amounts Owed (30%)

Lenders want to be sure that borrowers aren’t at risk of becoming overextended, so a FICO® score also looks at:

How much total debt you’re currently carrying
How much you owe on different types of accounts (credit cards vs. installment loans)
How many of your accounts have a balance at the time the score is calculated
Your “credit card utilization ratio” (total credit card balances divided by total credit card limits)
How much you owe on an installment loan compared to the loan’s original amount

What You Can Do

If you’re close to maxing out your credit cards or still owe a large amount on an installment loan, it may have a negative effect on your credit score. Experts generally recommend trying to keep your credit utilization ratio below 30%Thinking about buying a home or car, or need start-up money for a new business? You may want to work on paying off some debt to improve your credit utilization ratio before you compare personal loan rates.

Length of Credit History (15%)

Lenders want to see that you can manage money over time, so the longer your credit accounts have been open, the better it can be for your credit score. Although you may take pride in never having had any credit cards or in having paid off and closed all your accounts, those moves could actually hurt your credit score.

What You Can Do

If you’re having trouble building your credit, you may want to apply for a secured credit card—meaning that you provide a cash deposit as collateral for your line of credit. Check first, though, to be sure the card issuer will report your payment history to the three main credit bureaus. If you have a credit card that you no longer use, you may want to keep the account open anyway (as long as it doesn’t require an annual fee). You’ll improve your length of history and, if the card is paid off, enhance your credit utilization score. If you do use a card, paying off the purchase promptly also can have a positive effect on your payment history.

Credit Mix (10%)

A diverse mix of installment credit (a home mortgage, an auto loan, student loans) and revolving credit (credit cards, a home equity line of credit) can help lenders see that you can manage different kinds of debt. This is a smaller factor in determining your credit score, but it’s something to be aware of.

What You Can Do

The goal here isn’t to add more debt—it’s to create a balance.So if you have only a car loan, for example, you might choose to open a credit card account (that you can keep paid off every month) to add to your mix. Or you might use a low-interest personal loan to pay off several credit cards and diversify your mix that way.

New Credit (10%)

Sometimes it can make sense to open a new credit account—to get better terms, for example, or to take advantage of a rewards program. But if a consumer applies for several new credit cards in a short amount of time, it could be interpreted as a sign that money is tight—and lenders may see it as a risk. Opening new accounts can also affect other categories that go into calculating your score, including the length of your overall credit history and, if you make a purchase, the total amount owed on your cards.

What You Can Do

If you’re tempted to open a new account, consider whether it will help or hurt your financial situation.Will it assist you in making payments on time? Will the new account make it easier to track your spending and stick to your budget? If you have a new credit card with a better interest rate, will it help you stop using your other cards? When it comes to your credit score, it may be useful to think of your debt holistically, instead of as a bunch of individual bills.

The Takeaway

A credit score is just one tool lenders use to determine whether they want to work with a borrower. But because a poor score can have serious consequences for your finances—and possibly other aspects of your life—it’s important to maintain the highest score you can. That means striving to always make on-time payments and, if you can, paying more than the minimum on credit card balances to keep your credit utilization ratio below 30%. You also may want to use a credit monitoring service to be sure you always have an idea of what your score is and know that the information the credit bureaus are reporting is accurate.Watching your score improve could serve as motivation as you work to show lenders you can responsibly manage your debt. And as your score rises, you can enjoy the additional financial opportunities that become available, including more credit card options and better loan terms. An easy way to compare credit options that are open to you is to fill out one simple form at Lantern and view multiple offers from our lending partners.

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About the Author

Kim Franke-Folstad

Kim Franke-Folstad is an award-winning journalist with 30 years of experience writing and editing for newspapers, magazines and websites. Her work for SoFi covers a range of topics related to personal finance, including budgeting, saving, borrowing, and investing.

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