On the popular credit score spectrum of 300 to 850, where does a score start breaking bad? Different sources cite 670 or 630 or 600. But each lender makes its own determination of which credit scores are considered risky.
You usually need a credit score of at least 620 to get a conventional mortgage (one not backed by a government agency), but someone with a credit score as low as 500 to 580 may be able to qualify for an FHA or VA loan.
We’ll sort through the different credit score requirements, and the factors that might cause your score to drop, so you can work on building better financial habits.
Bad or Poor Credit Score Ranges
The most commonly used credit scores are calculated by FICO® and VantageScore®, and the two companies rank scores a little differently.
| FICO | VantageScore | ||
|---|---|---|---|
| Fair | 580-669 | Poor | 500-600 |
| Poor | 300-579 | Very Poor | 300-499 |
As you can see, a Poor credit score from FICO is not the same as that from VantageScore. FICO defines Poor as 579 or below (no one has a score below 300), whereas VantageScore’s Poor range tops out at 600.
To complicate matters, lenders may choose from multiple scoring models and industry-specific scoring models. This makes it tricky to know which one you’re being evaluated on. And your credit scores vary — yes, you have multiple scores.
A score in the 600s is typically high enough to qualify for some loans and credit cards. And generally, the best rates go to borrowers with scores in the mid-700s and above.
What’s the nationwide average? “Good.” As of this writing, Americans had an average FICO Score of 716 and a VantageScore of 698.
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What Determines Credit Scores?
A credit score is a number that summarizes your financial history in order to help lenders gauge the risk of extending credit. The higher your credit score, the more confident they are that you’ll repay your debt, and on time.
Your credit score is based on factors like how often you pay your bills on time, how many loans and credit cards you have, your debt relative to your credit limits, and the average age of your accounts. It also considers negative financial events such as judgments, collections actions, and bankruptcies.
Not all financial transactions get reported to the credit bureaus. Payday loans, a type of unsecured personal loan, are considered risky for consumers but don’t affect your credit score for better or worse.
Three major credit reporting agencies — TransUnion, Equifax, and Experian — compile the information on your history of borrowing, and then a company like FICO or VantageScore translates that data into a number.
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Why Your Credit Score May Be Bad
If you’re worried about your credit score, it can help to understand what actions, or inaction, count against you. First there are the obvious slip-ups: missed payments, late payments, and defaulting on accounts. Applying for a lot of credit in a short time is also a red flag for lenders.
Other factors may not hurt your credit score, but they won’t help you build a solid credit history either. If they surprise you, you’re not alone.
• You’re a recent grad. Although age cannot be used against you, younger people generally haven’t been financially independent long enough to have built up a significant financial history. “Credit age” accounts for about 15% of your score.
• You rarely use credit cards. Paying through money-transfer apps (also known as peer-to-peer, or P2P, apps) is convenient, but using them doesn’t contribute to your credit history. “Credit mix,” or the different types of credit you use, makes up 10% of your score.
• Your credit limit is low, and you spend almost the limit every month. You may think you’re living within your means, but lenders consider this a risky situation. “Credit utilization” accounts for a whopping 30% of your score.
How Bad Credit Can Affect You
Your credit score is just one factor that lenders consider when evaluating your application for things like a loan, but it carries a lot of weight. Your credit score not only affects your odds of approval for loans and credit cards, it plays a big role in determining the interest rates and repayment terms you’re offered.
Here are some of the things that take your credit history into consideration:
• Credit cards
• Car loans
• Federal PLUS loans
• Car insurance premiums (in some states)
• Homeowners insurance
In addition, your credit history may be weighed during a job or rental application.
Nonprime borrowers — generally defined as those with credit scores from 601 to 660, and who have negative items on their credit report — typically don’t get the lowest rates or most ideal terms when procuring a home or car loan.
For example, the interest rate on a subprime 30-year mortgage can be double or triple the average rate. A bigger down payment is usually required, and the repayment term may stretch to 40 or even 50 years, so the amount of interest paid over the life of the loan can be extraordinary.
Building Your Credit Responsibly
Millions of Americans have no credit score because they don’t have enough of a history to calculate one. If this is your situation, you have a couple of options. You may want to consider taking out a secured credit card that will allow you to access a modest line of credit by putting down a deposit.
You can also ask a friend or family member to add you as an authorized user to their credit card account. An authorized user can use the account but does not have any liability for the debt.
If you fall into the so-called bad credit score range, remember that it isn’t set in stone. There are steps you can take to help build your credit. It won’t happen overnight — any promise of a quick fix could be a scam.
But with a sustained effort, you may see a change in six months to a year, according to the Consumer Financial Protection Bureau (CFPB), a government agency. Here are some ideas to add to your Financial Adulting checklist.
Pay Bills on Time
An effective way to improve your creditworthiness in the eyes of lenders is to pay all your bills by the due date, every single time. If you have been late with any payments, consider getting caught up.
If you tend to forget bills, consider brushing up on how autopay works and set up payments through an app, an online bank account, or the entity billing you. Putting reminders on a paper or electronic calendar can help as well.
Pay Attention to Revolving Debt
Remember “credit utilization”? It’s generally a good idea to use no more than 30% of your total available credit. The CFPB says that paying off credit card balances in full each month helps to keep the ratio low and strengthen a credit score.
Credit utilization involves credit card and other revolving debts, not installment loans like mortgages or student loans.
Check Credit Reports and Scores
Between identity theft and plain human error, it’s worth reviewing your credit report for any unfamiliar charges or records, since the information in your credit report is used to generate your credit scores.
You can order a copy of your credit report from each of the three major reporting agencies for free at AnnualCreditReport.com. Look for mistakes in your contact details, accounts that don’t belong to you, incorrect reports of late payments, or accounts you closed being shown as open.
Credit reports do not show credit scores. How to get credit score updates then? A few options:
• Buy your FICO Score from myfico.com.
• Get your FICO Score for free from Experian.
• Look for your scores on a loan or credit card statement.
• Sign up for SoFi Relay, which provides weekly credit score updates and tracks all of your money in one place at no charge.
Closing and Opening Credit Cards Carefully
The average age of your accounts plays a role in your credit score, so you may want to keep some of your oldest cards open, even if you don’t use them often. Remember that closing cards also reduces your available credit, affecting your credit utilization ratio.
Opening cards affects your credit score as well. Every time you apply, the credit card company runs a hard inquiry on your credit, and your score takes a slight hit. Applying for a bunch of cards in quick succession can make it look like your financial situation has taken a turn for the worse.
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The Takeaway
A bad credit score is defined differently by individual lenders and credit bureaus. But a score in the 500s will make it difficult to qualify for a conventional mortgage, and can cost you money through higher interest rates. But with time and dedication, the tide can be turned.
If you’re struggling to reduce high-interest credit card balances or other debt, an unsecured personal loan may come in handy. SoFi fixed-rate personal loans can be used for almost any purpose.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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