What Is A Bad Credit Score?
A bad credit score refers to an individual’s history of failing to pay bills on time, and also the likelihood of not paying later. If you have a poor credit score, you will find it difficult to borrow money, particularly at a competitive interest rate. This applies to businesses with a bad payment history as well.
May be you are probably wondering ..
What is the rate range of a bad credit score?
According to FICO a credit score is bad when it is below 670. To be precise, the following FICO 2 scores are considered bad credit scores:
- 300 to 579 poor
- 580 to 669 fair
Refer to the table below to learn more about the scale
How is a credit score calculated and what makes it bad?
The most common credit rating in the USA is the FICO score. here is the way the score is calculated:
- Payment history (35%),
Many Americans who have borrowed money or signed up for a credit card are going to have a credit file at the 3 major credit bureaus in the USA like Equifax, Experian, and TransUnion. These documents contain crucial details like the amount they owe and whether they pay their bills on time or not. FICO used these details to calculate a ratio that it uses as a reference for the assessment. This is the most essential element in a FICO score.
- The total amount you owe (30%)
This is for the amount you owe: Having credit accounts and owing money on them does not necessarily mean that you are a borrower with a low FICO Score. But if you are currently making use of a large amount of your available credit, this could be interpreted that you are really in need and there is a higher chance you will be defaulting.
- Your credit history (15%)
in general, the longer the credit history is, the better it will increase your FICO Scores. If your credit history is short, it does not translate to a higher FICO score. It all depends on your credit score.
These are the things FICO takes into account:
- Since when was your credit accounts set up, whether it is your newest accounts or oldest ones and all your accounts average ages.
- Since when did you use the amount on your accounts last
- Your Credit Mix (10%)
Here all FICO considers your credits account like your mortgage loans, credit cards, finance institutions account to your installments accounts. In other words, it is your credit report. If your credit report does not contain enough information it can seriously affect your score.
- Your new credit 10%
Research has shown that the fact that someone opens many credits accounts in a very short time is a sign of bigger risk. Stay away from opening too many accounts often. Consider exhausting all the financial aids available in your state before opening another account.
It is easy to access loans, but it is never easy to pay them back. Please remember how hard it will be for you to pay the loans back and try not to borrow for emergencies that you could solve with other means. Think of borrowing when you are thinking of acquiring an asset. Try to work on your credit history, report and others whatever your score.