What Is a Bad Credit Score?

By Michelle L. Black
Reviewed by Lauren Bringle, AFC®

Most credit scores range from 300-850. But at what point does a lender consider a credit score to be low? How bad is a 500 credit score, for example? Would a credit score under 600 or 650 still be a problem?

The answer, it turns out, might not be as straightforward as you expect.

In this article, we’ll break down:

• What is a bad credit score?
• What things could hurt your credit score?
• What does a bad credit score mean for your wallet?
• Can bad credit be fixed?
• Is having bad credit the end of the world?
• Financial resources for bad credit

Now let’s dive in.

What is a bad credit score?

Whether you have a bad credit score largely depends on who is checking your credit and how they interpret the number. The credit score type that a lender uses to evaluate your level of credit risk also plays a role.

Before you start to feel too frustrated with your credit account, there are some general rules you can use to track the health of your credit scores. Rod Griffin, Senior Director of Consumer Education and Advocacy with Experian, says:

“Scores that are lower than 680 are generally considered subprime, meaning your credit application will likely be declined or you will have to pay much higher interest rates or fees.”

FICO also provides guidance^[1] to help you interpret the numbers where your credit score range is concerned.

Here are the FICO® score ranges:

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

And, of course, FICO Scores aren’t the only credit score on the market. With the exception of the mortgage industry, lenders use VantageScore credit scores^[2] to evaluate millions of borrowers each year.

VantageScore credit scores have the same 300-850 range as most FICO Scores. But the basic classification of score ranges (i.e., good, bad, etc.) is a little different.

Here are the VantageScore ranges:

• Excellent: 781-850
• Good: 661-780
• Fair: 601-660
• Poor: 500-600
• Very Poor: 300-499

What is the lowest credit score for a mortgage?

To be accepted for a conventional mortgage, the lowest credit score you can have is 620, but you’ll need to have a score of at least 580 if you’re applying for an FHA loan with a 3.5% downpayment. If your score is lower than 580, you’ll need a 10% downpayment.^[6]

The credit score range categories above can be a helpful gauge if you’re working to improve your credit rating. But when you need a specific type of financing for your credit account, it’s best to find out the lender’s actual requirements.

Casey Fleming, mortgage advisor and Author of The Loan Guide: How to Get the Best Possible Mortgage, says:

“For conventional mortgages, 620 is the lowest score possible. For an FHA loan, you need a score of 580.”

Below those levels you might still be able to qualify for a home loan. However, it tends to be a difficult and expensive process. See our article about what it means to have a 580 credit score.

Mortgage approval and pricing, for example, is largely (though not entirely) based on your credit scores. Because mortgage lenders issue loans in such large amounts, they generally check all three of your credit scores from Equifax, TransUnion, and Experian when you apply for a new home loan. A low credit score may make it very difficult for a borrower to qualify for a mortgage loan.

Overall, better credit scores lead to lower mortgage prices.

Just how much money can a better credit score save you on a mortgage? According to Fleming, increasing your credit scores could save you thousands of dollars.

However, he points out that:

“Price breaks happen at intervals. So, raising your score from 710 to 719 may not make any difference at all. But raising it from 719 to 720 might save you thousands of dollars.”

If you’re in the market for a mortgage, Fleming recommends having your credit run by a mortgage professional early and get a baseline cost for financing. From there, you can work to improve your score if needed.

Learn how to build your credit in this detailed guide.

What is the lowest credit score to buy a car?

There is no set minimum credit score when it comes to buying a car. One auto lender might be comfortable approving your application with a credit score as low as 550. The next lender might have borrowing options for borrowers with scores under 500. In this range, you will pay extremely high interest and your monthly payments will be much higher compared to someone with a higher credit score.

It’s also worth noting that many auto lenders don’t use the standard 300-850 credit score range found in most FICO® and VantageScore scoring models.

In general, buying a car when you have poor credit is easier than buying a home with bad credit. Since auto lenders typically issue loans for much smaller amounts than mortgage lenders, this makes sense. Yet a bad credit score can still make it harder to find a good deal on auto financing.

Three common types of new car financing include:

• Traditional Financial Institutions (Banks and Credit Unions)
• Captive Lenders (Lenders attached to a specific auto dealer)
• Other Lenders (Online Lenders, Local Finance Companies, etc.)

In each category above, the individual lender will set its own approval criteria.

FICO® Auto Score

FICO also creates and sells the FICO Auto Score which features a scale of 250-900.

Because approval criteria (credit scores and other factors) vary so widely from lender to lender, it’s helpful to search for financing options before you start the hunt for a new ride.

Many lenders offer pre-qualification processes as well. So, you can see if you’re eligible for a loan in advance, and what kind of rate and terms to expect if you qualify.

Comparing multiple offers can help you make sure you find the best deal for your credit situation.

What is the difference between bad credit and poor credit?

Bad credit and poor credit are two terms that essentially describe the same problem. They both mean that, due to your credit score, you may have a hard time qualifying for certain types of financing.

If you qualify for a loan or credit card with a bad credit score, the lender will consider you to be a subprime borrower. As such, you should expect to potentially pay more in interest and fees than you might pay if you had a better credit score.

You could also face less attractive repayment terms and other negative consequences. Learn more about what it means to have subprime credit.

What things could hurt your credit score?

When a credit scoring model like FICO® or VantageScore calculates your score, it reviews the information on your credit report.

There are five major credit score factors, or categories of information that make up a FICO® Score:

1. Payment history
2. Amounts owed
3. Length of credit history
4. Types of credit
5. New credit

Each is worth a certain percentage of your overall points.

Your payment history, for example, accounts for 35% of your FICO Score. So, late payments can have a severe negative affect on your credit score.

Hard credit inquiries, by comparison, are part of a category that’s collectively worth 10% of your FICO Score (new credit). Too many hard inquiries might have a negative impact on your score. However, that impact would be minor compared to other more serious types of derogatory credit information.

Some common credit report details that might hurt your credit score include:

• Late payments
• Collection accounts
• Public records (bankruptcies, etc.)
• Foreclosures
• Repossessions
• High credit utilization ratio (AKA the relationship between your credit limit and balance on credit cards)

If your credit history contains details that a scoring model considers to be risky behavior, you might earn a poor credit score as a result.

Negative information on your credit report could damage your credit score. But all items on your credit report don’t all have the same weight.

What does a bad credit score mean for your wallet?

“A bad credit score means more cash will leave your wallet,” says Griffin.

Higher interest rates and fees, more expensive insurance premiums, and higher deposits when you lease an apartment or apply for new utility services are just a few examples of the many ways bad credit can cost you.

A lower credit score signals that you’re a higher credit risk for lenders. This means that statistics show you’re more likely to pay a bill late by 90 days or worse within the next 24 months.

How a bad credit score affects your finances

FICO provides a free online tool^[3] that estimates how much you might pay for a mortgage or auto loan based on your credit.

Here’s an example of the potential difference in financing costs for a 30-year fixed mortgage on a $350,000 loan, according to your FICO® Score.

$350,000 Mortgage
30-Year Fixed Loan

With excellent credit:

• FICO® Score: 760-850
• APR: 6.058%
• Monthly Payment: $2,111
• Total Interest: $410,139

With bad credit:

• FICO® Score: 620-639
• APR: 7.647%
• Monthly Payment: $2,483
• Total Interest: $543,728

In the hypothetical scenario above, you’d pay an extra $372 every month on your mortgage if you had a bad FICO® Score (620-639) versus an excellent one (760-850).

But the truly eye-opening cost of bad credit comes to light when you examine the total cost of financing. Over the course of 30 years, a bad credit score would cost you an extra $133,589 in the example above.

Can bad credit be fixed?

A bad credit score isn’t a small problem. But it is usually something you can fix. You can build or rebuild your credit with the right plan and a little patience.

How can you improve bad credit?

Everyone’s situation is different. If you want to improve your credit, you should start out with a little research. In other words, it’s wise to review all three of your credit reports.

Tip: Visit AnnualCreditReport.com to claim a free report from each major credit bureau once every 12 months.

It’s best to build your credit improvement plan based on your personal report. But if you’re looking for inspiration, the following strategies offer potential ways to improve a bad credit score.

• Pay down credit card balances to lower your credit utilization ratio.
• Avoid all future late payments.
• Dispute errors you discover on your credit reports.
• Ask a loved one to make you an authorized user on a well-managed credit card.
• Consider adding new credit (like a Self Credit Builder Account) and managing it wisely.
• Make sure you have diverse types of accounts on your credit report.

How long does negative information stay on your credit report?

It may encourage you to learn that most negative credit information isn’t allowed to stay on your credit report permanently.

The Fair Credit Reporting Act (FCRA) makes the credit reporting agencies remove most types of derogatory information from your report after a certain period of time.

Here’s a look at some of the credit reporting time limits the FCRA puts into place.

Credit Reporting Time Limits

Up to 7 Years:

• Collections
• Late payments
• Foreclosures
• Repossessions
• Charge-offs

Up to 10 Years: Bankruptcy

Up to 2 Years: Hard credit inquiries

No Removal Required: Unpaid federal student loans

How long does it take to clear bad credit history?

You usually have to wait around seven years for a credit reporting agency to clear negative credit history from your report.

However, if you believe a negative item on your credit report is too old, you have the right to dispute it with the appropriate credit reporting agency. The Federal Trade Commission provides a helpful guide^[4] to help you navigate the process.

How long does it take to get a 700 credit score?

Earning a credit score of 700 or higher is a good goal for many people. But the amount of time you’ll need to reach that threshold depends on where you’re starting your credit improvement journey.

In general, you should plan to give yourself at least six months to build credit from scratch. And even after six months, it may take a while for your score to surpass 700.

If you’re trying to repair damaged credit, it might take six months, a year, or more before you can build your score back up to 700 or higher. But the good news is that every time your credit score increases, you may start to enjoy some more benefits of good credit that you missed out on before.^[7]

What’s the difference between having a bad credit score and no credit score?

Having a bad credit score is generally the worst position you can be in when you’re seeking a loan or credit card. A low score indicates that you had trouble managing your debts in the past.

But not having any credit established — aka no credit score — can also be a problem.

When you’re building credit from scratch, you won’t be eligible for a FICO Score until your credit report meets certain criteria^[5].

Your credit report needs:

• At least one account that’s a minimum of six months old
• At least one account that a creditor has updated with a credit bureau in the last six months

Your credit report also cannot contain any notation that you’re deceased.

Once you establish some credit history, Griffin says:

“Your credit scores will improve with time and good credit management practices. Paying your bills on time, every time and keeping your credit card balances as low as possible will result in your scores improving as your credit history gets longer.”

However, Griffin also warns of a potential pitfall.

“A person may have a well-established credit history,” he says, “but if they close their accounts or do not use them at all for a period of months, it’s possible that a score could not be calculated because of the lack of activity.”

To avoid this problem, make small purchases once every few months on your credit card accounts. You’ll want to pay your credit card balance off in full by the due date or sooner.

Following this plan may help you maintain solid credit scores without going into extra debt.

Is having bad credit the end of the world?

Having bad credit is far from the end of the world, and that’s an important fact to remember.

Yes, a low credit score can be stressful. But you can take steps, even baby ones if needed, to improve your credit situation over time.

“Catching up on late payments, reducing your credit card balances, and then making your payments on time going forward will eventually restore your credit history,” Griffin says.

He also points out that as the negative information on your credit report grows older, it will have less impact on your credit scores.

Depending on your situation, you may want to consider adding positive accounts to your credit reports. New positive accounts won’t erase bad credit history, but they might be a smart step in the right direction.

Most of all, don’t give up if you’ve faced credit challenges in the past (or even if you’re still facing them now). With time and consistency, you can improve your credit situation for the better.

Financial resources for bad credit

• Getting a personal loan with bad credit
• Debt consolidation loans with bad credit
• Getting a credit card when you have bad credit
• Renting an apartment when you have bad credit
• Using secured credit cards to build credit
• Credit Repair vs. Credit Building

Sources

1. "What is a FICO® Score?" on myFico.com
2. "2022 VANTAGESCORE Market Study Report" on VantageScore.com
3. "Loan Savings Calculator" on myFico.com
4. "Disputing Errors on Credit Reports" by the Federal Trade Commission
5. "What are the minimum requirements for a FICO® Score?" on myFico.com
6. “Credit Requirements for FHA Loans” from FHA.com
7. “How Long Does it Take to Establish Credit” by American Express

About the author

Michelle L. Black is a leading credit expert with over 17 years of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting and debt eradication. See Michelle Black on Linkedin.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to help people build credit and savings. See Lauren Bringle on Linkedin.