What Is a a Bad Credit Score?

Written by: Jacob S.

Published on: December 25, 2024

A bad credit score can feel like a roadblock, but understanding its implications and how to improve it is a powerful first step toward financial health. Let's break it down so you can take control of your credit.

Key Takeaways

A bad credit score, typically below 580, signals higher risk to lenders and can limit access to loans, rentals, jobs, and even insurance.
Payment history, credit utilization, and length of credit history are the most influential factors impacting your credit score.
The financial cost of bad credit can be significant, with higher interest rates adding tens of thousands of dollars to loans over time.
Credit scores vary by model: FICO classifies "poor" below 580, while VantageScore defines "very poor" below 500 and "poor" between 500–600.
Improving your credit score involves consistent steps like paying bills on time, reducing debt, and regularly reviewing credit reports for errors.

What Is Considered a Bad Credit Score?

By definition, a bad credit score is typically considered any score below 580, as it indicates higher risk to lenders and limited financial reliability.

Having a "bad" credit score (again, usually under 580) affects far more than just loan applications. It can impact your ability to rent an apartment, secure utilities without deposits, or even land certain jobs. Some insurance companies also use credit-based insurance scores to determine premiums, meaning a bad score could lead to higher insurance costs.

Your credit score is a numerical representation of your creditworthiness that lenders use to evaluate your likelihood of repaying debts. Scores typically range between 300 and 850, with higher numbers indicating better creditworthiness. Each score range carries different implications for your financial options:

Credit Score Range	Rating	Implications
800+	Excellent	Access to premium credit cards, lowest interest rates, highest approval odds
670–799	Good	Competitive rates, strong approval chances for most financial products
580–669	Fair	Limited options, higher interest rates, may require larger down payments
Below 580	Poor	Significant challenges in obtaining credit, much higher interest rates if approved

The Real-World Cost of Bad Credit

The financial implications of a poor credit score can be staggering. Consider these concrete examples:

On a $200,000 30-year mortgage, someone with a credit score of 550 might pay 2-3 percentage points higher in interest than someone with good credit. This difference could cost over $100,000 in additional interest over the life of the loan. For auto loans, bad credit borrowers might face interest rates of 15-20% compared to 3-5% for good credit borrowers, potentially adding thousands to the total cost of the vehicle.

What Is a Bad FICO Credit Score?

A FICO credit score ranges from 300 to 850. Scores under 580 classified as "poor", while scores ranging from 580 – 669 are considered "fair." Generally, a "bad" FICO score falls below 580, signaling to lenders that you may be at a higher risk of defaulting on payments. Scores in the fair range may still result in higher borrowing costs or limited access to credit, but they offer more opportunities than a poor score.

Having a bad FICO score can impact various aspects of your financial life, making it more difficult to qualify for loans for bad credit. For example, you might face higher interest rates on personal loans, auto loans, or credit cards. A low score can also make it difficult to qualify for a mortgage or even rent an apartment, as landlords often check credit as part of the application process. Additionally, some employers may review your credit as part of a background check, particularly for roles in finance or government.

FICO considers several factors when calculating your score. Payment history holds the most weight, so missed payments or defaulted accounts significantly impact your score. Similarly, high credit utilization—using more than 30% of your credit limit—can bring your score down. Understanding how these factors influence your FICO score is the first step to rebuilding it.

What Is a Bad VantageScore Credit Score?

Like FICO, VantageScore also ranges from 300 to 850, but it defines "poor" credit as scores between 500–600 and "very poor" as scores below 500. A bad VantageScore can make it harder to secure loans, credit cards, or favorable interest rates. Since VantageScore considers credit behavior more dynamically than FICO, even a single late payment or high utilization rate can significantly lower your score.

One key difference between VantageScore and FICO is how they weigh your financial history. VantageScore puts more emphasis on recent credit behavior, meaning a recent delinquency can have a more immediate and severe impact compared to FICO. Another distinction is that VantageScore is more inclusive, often generating a score for individuals with less credit history, which could skew results lower for newer credit users.

The effects of a bad VantageScore are felt in many areas. Lenders may use it to assess risk, and a lower score might mean higher car insurance premiums or even deposits for utilities. Recognizing how VantageScore differs from FICO helps you tailor your approach to credit improvement based on which score lenders rely on.

Factors Behind Bad Credit Scores

Several key factors contribute to a low credit score, each weighted differently in scoring models:

Chart for analyzing your credit score

Payment History (35% of your FICO Score):

Even a single 30-day late payment can drop your score by 50-100 points
Multiple missed payments create a compounding negative effect
Collection accounts can remain on your report for seven years

Credit Utilization (30% of your FICO Score):

Using more than 30% of available credit signals financial stress
Maxed-out credit cards can drop your score significantly
High balances across multiple cards have an amplified negative impact

Length of Credit History (15% of your FICO Score):

New credit users naturally have lower scores
Closing old accounts can inadvertently hurt your score
Consistent long-term credit use builds credibility

Factors That Directly Influence Your Credit Score

Your credit scores—whether FICO or VantageScore—are determined by several key factors. Payment history is the most significant for both models, accounting for 35% of your FICO score. Missing even one payment can cause a dramatic drop.

Credit utilization. This measures the percentage of your available credit that you’re using. Keeping this below 30% is vital for maintaining or improving your score.
Length of your credit history. The longer your accounts have been open, the better it is for your score. A healthy mix of credit types, such as installment loans and credit cards, also plays a role, demonstrating to lenders that you can manage different types of debt.
New credit inquiries. While a few soft pulls (like checking your own score) won’t harm it, multiple hard inquiries from loan or credit card applications can lower it temporarily.

It's important to note what doesn’t affect your score. Your income, savings, or job history don’t directly impact your credit score, though lenders may still consider these factors separately.

Factors That Indirectly Affect Your Credit Score

While your credit score plays a significant role in your financial life, it's important to understand what factors don’t directly influence it. Knowing this can help you focus your efforts on areas that truly matter for improving or maintaining your score. Here are some key factors that don’t have a direct impact on your credit score:

1. Income Level

Your salary or total income isn’t considered when calculating your credit score. While lenders may look at your income to assess your ability to repay a loan, it doesn’t factor into your FICO or VantageScore models. Someone with a modest income but excellent credit habits can have a higher score than a high earner with poor credit behavior.

2. Employment Status and History

Your job title, employer, or length of employment also doesn’t directly affect your credit score. However, certain situations—like losing a job—could indirectly influence your score if it leads to missed payments or increased reliance on credit.

3. Checking or Savings Account Balances

The money you have in your checking or savings accounts isn’t reflected in your credit score. Even if you have significant cash reserves, it won’t help your score unless you use that money to pay down debt or manage your credit responsibly.

4. Utility Payments (Unless Reported)

Most utility companies don’t report your payment history to credit bureaus unless you miss a payment and the account goes into collections. Even if you’ve consistently paid your utility bills on time, it won’t contribute to your credit score unless you opt into programs like Experian Boost, which allows certain bills to be factored into your score.

5. Rent Payments (Unless Reported)

Rent payments don’t typically show up on your credit report unless your landlord reports them to a credit bureau or you use a rent-reporting service. Without these, on-time rent payments won’t directly benefit your credit score.

6. Marital Status

Getting married, divorced, or remaining single has no bearing on your credit score. However, financial decisions made jointly with a spouse, like co-signing for loans or opening joint accounts, can affect your score indirectly if payments aren’t managed well.

7. Age, Race, or Gender

Credit scoring models are designed to be impartial and do not consider personal demographic information like your age, race, ethnicity, or gender. These factors are excluded to ensure fairness and compliance with laws like the Equal Credit Opportunity Act.

8. Soft Credit Inquiries

Checking your own credit score or a pre-qualification inquiry from a lender does not impact your score. These “soft pulls” are entirely for informational purposes and don’t indicate an active application for credit.

By understanding these distinctions, you can avoid unnecessary worry about factors outside your control and instead focus on habits that actively improve your credit score—like on-time payments, reducing debt, and maintaining a healthy credit utilization rate.

How to Find Your Credit Score

Finding your credit score is easier than ever, thanks to free and paid resources. A good starting point is AnnualCreditReport.com, where you can access a free copy of your credit report from each major credit bureau—Equifax, Experian, and TransUnion—once per year. While these reports don’t include your score, they provide detailed information about your credit accounts, payment history, and inquiries.

For free access to your credit score, many financial apps and websites, such as Credit Karma and Experian, offer updated scores regularly. Some banks and credit card issuers also provide free access to your FICO score through their apps or online banking platforms. If you need more in-depth monitoring, paid services like myFICO or Experian Premium offer real-time updates, detailed analysis, and protection against identity theft.

Checking your credit score doesn’t harm it if done through soft inquiries. This is especially useful when monitoring your progress over time. Once you’ve reviewed your score, take actionable steps based on what you find. For example, if your score is low due to high utilization, create a plan to pay down credit card balances. If there are errors on your report, dispute them immediately to prevent further damage.

How to Improve Your Credit Score

Improving your score requires a multifacited approach. You may begin by focusing on paying bills on time, reducing outstanding balances, and avoiding opening too many new accounts at once. Building credit isn't just a short term fix, but rather part of a long term strategy.

Immediate Actions to Start Fixing Your Credit

Take these steps to begin improving your credit score right away:

Obtain and Analyze Your Credit Reports: Request free credit reports from Equifax, Experian, and TransUnion. Carefully review each report for errors, such as incorrect account statuses, outdated balances, or unauthorized accounts.
Document and Dispute Inaccuracies: If you spot errors, file disputes with the credit bureau(s). You can typically do this online or by mail. Provide clear documentation, including account statements and correspondence, to support your claim.
Set Up Automatic Payments: Late payments are one of the biggest credit score killers. Automate bill payments to ensure you never miss due dates, as payment history accounts for 35% of your credit score.
Create a Budget Prioritizing Debt Payments: Use tools like budgeting apps or spreadsheets to allocate funds toward reducing outstanding debts. Focus on paying off high-interest debts first while staying current on all accounts.

Medium-Term Credit Building Strategies

Once you've addressed immediate concerns, focus on these impactful strategies over the next 6–12 months:

Negotiate with Creditors for 'Pay for Delete' Arrangements: Reach out to creditors to negotiate the removal of negative marks from your credit report in exchange for paying off outstanding balances. Ensure you get any agreements in writing before making payments.
Consider Debt Consolidation: Combine multiple debts into one loan or credit card with a lower interest rate. Debt consolidation simplifies payments, reduces interest, and can help you stay organized.
Become an Authorized User: Ask a trusted friend or family member to add you as an authorized user on their credit card. Their responsible credit habits can boost your score, but ensure their credit history is strong.
Look Into Secured Credit Cards: If you struggle to qualify for traditional credit cards, secured credit cards are a great way to rebuild credit. They require a refundable deposit and report your usage to credit bureaus, helping you establish positive history.

Long-Term Credit Habits

Establish consistent habits to maintain and grow your credit score over time:

Maintain Credit Utilization Below 30%: Credit utilization—the percentage of your available credit you're using—plays a significant role in your score. Aim to use less than 30% of your total credit limit, and pay down balances as quickly as possible.
Keep Old Accounts Open: The length of your credit history influences your score. Even if you’re not using an old account, keeping it open can positively impact your average account age and credit history length.
Mix Credit Types Responsibly: A healthy mix of credit accounts, such as revolving credit (credit cards) and installment loans (car loans, mortgages), demonstrates that you can handle different types of debt effectively.
Monitor Your Credit Score Monthly: Use credit monitoring tools to stay informed about your score changes. Regular tracking can alert you to fraudulent activity or errors before they impact your score significantly.

Advanced Credit-Building Strategies

For those serious about credit rehabilitation, consider these sophisticated approaches:

1. Credit-Builder Loans: These specialized products hold your loan payment in a savings account while reporting positive payment history.

2. Self-Lender Programs: Similar to credit-builder loans but structured as a certificate of deposit (CD).

3. Rapid Re-Scoring: After paying down significant debt, request your creditor report to bureaus mid-cycle.

4. Strategic Card Applications: Space applications 6 months apart to minimize hard inquiries.

Remember, credit scores are dynamic—they can improve as quickly as they declined if you maintain consistent positive habits. With dedication and the right strategy, most people can see significant improvements within 12-24 months of starting their credit rehabilitation journey.