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What Is Considered a Bad Credit Score?

July 24, 2019 · 6 minute read

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What Is Considered a Bad Credit Score?

A bad credit score walks into a bar. The bartender asks, “What will you have?” The bad credit score replies, “Whatever I can qualify for.”

(We’ll be here all week.)

Bad jokes aside, your credit score is important. The number factors into whether you can qualify for loans or credit cards, auto or homeowner’s insurance, and the terms you’re offered on debt. So what’s a bad credit score versus a good one? And how do you know if you’re somewhere in between?

Before exploring what qualifies as a bad credit score, it can help to understand what a credit score is. Essentially, this number summarizes a bunch of information about your financial history in order to help lenders. The higher your credit score, the more confident they are that you’ll repay your debt and pay your bills on time. Your credit score helps you receive a loan or policy, and determines what interest rates and repayment terms you get.

Your credit score is based on factors such as how often you pay your bills on time, how many loans and credit cards you have, what your debt is relative to your credit limits, and the average age of your accounts. It also considers negative financial events, such as judgments, collections actions, or bankruptcies.

This information is taken from your credit report, which is compiled by three major credit reporting agencies: TransUnion, Equifax, and Experian. Your credit score is just one factor that lenders consider when evaluating your application for things like a mortgage or loan, but it carries a lot of weight.

What Is a Bad Credit Score?

The most commonly used credit scoring system, employed by more than 90% of lenders in the U.S., is called a FICO® credit score.

These scores are calculated across a range of 300 to 850 in most cases, and from 250 to 900 in some industries. There is no one definition of a “good” or “bad” credit score—each lender makes their own evaluation of scores considered to be risky.

Still, FICO offers some general guidelines on how to interpret credit scores: A credit score below 580 is often seen as poor, signaling to most lenders that you’re a risky borrower. You may have trouble qualifying for some loans if you fall into this range.

Still, lenders made more than $800 million in mortgage loans in December 2018 to borrowers with scores below 580. A score of 580 to 669 is typically considered “fair”—still below average but able to qualify for loans with some lenders.

What Is a Good Credit Score?

Again, each lender will have their own guidelines for reviewing credit history and minimum credit score requirements. But according to FICO , a “good” credit score usually falls between 670 and 739. This is around the average for American consumers.

A “very good” score is often between 740 to 800 and telegraphs that you’re a pretty reliable person to lend to. A score of 800 or higher qualifies as “exceptional.” This is far above average, and though a lender’s top tier is often in the mid-to-high 700s, having an 800+ score might help in other areas like qualifying for exceptions for reserves. .

Boosting Your Credit Score

If you fall into the bad credit score range, remember that it isn’t set in stone. There are steps you can take such as making on-time bill payments, keeping debt to a minimum (or consistently paying it off) and being mindful of opening and closing your credit cards. It won’t happen overnight—be aware of anyone who promises a miracle quick fix as this could be a scam.

But with sustained effort and a focus on the right things, you may see significant improvement within six months to a year . Here are some tips for increasing your score:

Paying Your Bills on Time

Your payment history accounts for 35% of your credit score — more than any other single factor. That’s why one of the most effective strategies for boosting your score may be to make sure that you pay all your bills by the due date, every single time. If you have been late with any payments, consider getting caught up.

Then make sure you stay on top of each monthly statement, at least paying the minimum amount due.

If you tend to forget, consider paying your bills automatically through, checking account, or the entity billing you. Putting reminders on a paper or electronic calendar can help as well.

Reducing Your Debt

The next biggest chunk of your credit score is comprised of how much you owe—this makes up 30% of the calculation. Specifically, the algorithms are looking at how much debt you have relative to your credit limits. It’s generally a good idea to use no more than 30% of your total available credit. One way to improve this ratio is to pay down some of your debt.

You can do this by creating a budget for yourself that includes money set aside each month to pay off your balances. That might mean cutting down spending on non-essentials. Or it might mean taking on a side hustle, asking for a raise, or otherwise increasing your income.

Another way to improve this ratio is by increasing your credit limit. You can call your creditors and ask if they’ll bump up your credit line. You can also avoid closing credit cards even if you don’t use them, if there is no downside to keeping them open (for example, if they don’t have an annual fee). And of course, sticking to a budget going forward can help you reduce the balances that you rack up in the first place.

Checking Your Credit Report

Between identity theft on the rise and the possibility for human error, it may be worth reviewing your credit report for any unfamiliar charges or records, since the information in your credit report is used to generate your credit score.

You can order a copy of your credit report from each of the three major reporting agencies once a year for free at AnnualCreditReport.com . This annual free credit report gives credit history, but not credit “scores.” 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.

If you see an error, you can dispute it with both the credit reporting agency and the company that holds the account. Provide them with any documentation available to back up your case. If you are close to applying for a mortgage or in the process, keep in mind that although disputes are supposed to be resolved within 30 days, it can take up to 90 days.

Many factors affect your credit score.
Check yours in the SoFi app.


Closing and Opening New Credit Cards Carefully

The average age of your accounts makes up 15% of your credit score, so you may want to consider keeping 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 do so, the 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.

Building a Credit History

Another factor that can harm your credit score is having a limited credit history. More than 45 million Americans actually have no credit score because they don’t have enough of a history to calculate one. If this your situation, you do have options. Experian offers a service that allows adding positive payments such as on-time utility and cell phone bills to your credit file, thus boosting your credit score. You also may want to consider taking out a secured credit card.

This allows you to access a modest line of credit by putting down a deposit. By making on-time payments, you can start building up a credit history that will eventually help you qualify for unsecured cards or loans.

SoFi Personal Loans

If you’re struggling to reduce your credit card balances, a personal loan may offer a stepping stone to a better credit score. Personal loans can be used for almost any purpose, including paying off other debt, but often come with significantly lower interest rates than credit cards do.

With SoFi, you may be eligible to take out a personal loan of between $5,000 and $100,000 at competitive interest rates, with no origination fees, closing costs, or prepayment penalties.

You can use a personal loan to pay off existing credit card balances or to prevent them from accumulating in the first place by funding a major project directly. Apply online in a matter of minutes.

Looking for ways to improve your credit score? A SoFi personal loan can help you reduce credit card balances quicker or avoid racking up high-interest debt.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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
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