What is a bad credit score?

Having a low credit score can make it difficult to qualify for loans. But what’s considered a bad score can vary. For example, FICO®, a major credit scoring company, lists credit scores under 580 as poor, its lowest rating. 

What you’ll learn:

• A bad credit score may fall into credit score ranges that FICO and VantageScore describe as poor or very poor. 

• A FICO credit score of less than 580 might be considered poor. A VantageScore credit score of 600 or less might be poor, with very poor scores being 499 or less.

• It’s possible to improve bad credit scores by using credit responsibly. That means doing things like paying bills on time and reducing debt.

• You can see where your credit stands and track your progress for free with CreditWise from Capital One.

Generally, “bad credit” refers to scores in the poor range—as defined by credit scoring companies like FICO and VantageScore. According to the Consumer Financial Protection Bureau (CFPB), FICO and VantageScore credit scores range from 300 to 850. Both companies have multiple versions of credit scores and scoring models. For example, FICO rates scores below 580 as poor, while VantageScore labels scores of 600 or less as poor and below 500 as very poor.

Credit scores are intended to reflect a borrower’s creditworthiness and give lenders an idea of risk. A low credit score could indicate a higher risk.

FICO considers a credit score to be poor if it’s below 580. Here’s how it breaks down credit scores:

• Exceptional: 800-850
• Very good: 740-799
• Good: 670-739
• Fair: 580-699
• Poor: less than 580

A bad VantageScore credit score of 600 or less falls into the poor or very poor range. Here is its scoring system:

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

Credit-scoring companies focus on five primary factors to determine credit scores. And according to the CFPB, they’re all calculated based on data from credit reports. The factors are:

1. Payment history refers to how often you pay your bills on time.

2. Amounts owed involve multiple aspects, including credit utilization ratio, which is a comparison of how much revolving credit you use compared to how much you have available.

3. Length of credit history considers account ages from multiple perspectives, including oldest account, newest account and average age of all accounts.

4. Credit mix is the combination of revolving and installment credit accounts; more variability can improve your score by demonstrating the ability to manage different types of debt.

5. Recent inquiries refer to how many times creditors have pulled your credit report and how many new loans you have.

Past bankruptcies, foreclosures and collections may also factor into your credit score. And the CFPB says those things can sometimes affect scores for 10 years or longer.

Credit reports could contain negative information that influences credit scoring. But the reports themselves are neutral collections of information that credit bureaus gather from lenders and other sources. If you see errors on your credit report, you have the right to dispute the inaccuracies.

Everyone’s situation is different, but bad credit scores could affect your financial goals and lending options. Here are some potential downsides to low credit scores:

• Credit cards: Low credit scores can hurt your chances of qualifying for credit cards, or you may be offered ones with less favorable terms and benefits.

• Loans and mortgages: If your credit scores aren’t high enough, you may not qualify for loans or be offered the best terms possible.

• Interest rates and loan terms: Credit scores influence the terms lenders offer. For example, bad credit scores can lead to higher interest rates or larger down payments.

• Rental applications: When you apply for a lease, landlords could look at your credit when reviewing your rental application.

• Employment applications: Some potential employers may pull your credit reports as part of a background check. But they have to get your permission first. And if you decline or have bad credit, you might not be considered for the role.

• Insurance premiums: In some states, your credit history could influence the cost of things like car insurance. Bad credit might mean higher premiums.

• Deposits: If you have low credit scores, utility companies might require a security deposit to set up services.

Improving your credit scores takes time, but you can get an idea of where you are and start to build credit if you:

1. Review your credit reports: You can get a sense of where you stand by requesting free copies of your credit reports from AnnualCreditReport.com. You can also monitor your credit for free with CreditWise. If you see a mistake on your credit report, you can contact the credit bureaus to dispute it. Removing the information could improve your scores.

2. Pay your bills on time: FICO says payment history is the biggest factor in calculating credit scores. And the CFPB says getting current on payments and making on-time payments from now on could help improve your credit scores.

3. Lower your credit utilization ratio: The CFPB recommends using 30% or less of your credit limits across all your accounts. Working toward that goal could lead to improved credit scores.

Paying bills on time, repaying existing debt and not maxing out your credit cards can help build credit. When used responsibly, a credit card can also be a helpful tool. Capital One offers several credit cards for people trying to build credit.