Credit scores are an important measurement for lenders to understand how likely a borrower will pay back a loan based on one's history.
People with good credit scores have an increased chance of being approved for loans and increased credit lines, whereas those with bad scores are less likely to be trusted by lenders. Here is a look at what constitutes a bad credit score.
ESG: WHAT IT IS AND HOW IT AFFECTS YOU, EVEN IF YOU DON'T REALIZE IT
FICO Score
FICO is one of the two most popular credit score systems used in the United States. For this credit score system, there are five levels to describe a borrower's credit standing, per FICO:
Poor: less than 580
Fair: 580-669
Good: 670-739
Very Good: 740-799
Exceptional: 800 or higher
The worst category is "poor," which FICO describes as "well below" the average in the U.S. and meaning that the "borrower may be a risk." The "fair" category is also below average, but FICO notes that "many lenders will approve loans with this score."
VantageScore
VantageScore is the other most popular credit score system in the U.S. This system is also divided into five evaluation levels.
Very Poor: 300-499
Poor: 500-600
Fair: 601-660
Good: 661-780
Excellent: 781-850
For the VantageScore, the two lowest categories are "very poor" and "poor," and they encompass similar numeric values as the majority of the "poor" rating for the FICO credit score.
What determines your credit score
For the FICO credit score, the evaluation is decided on a weighted scale of five different factors. Payment history determines 35% of the score, the amount owed determines 30% of the score, the length of credit history determines 15% of the score, the mix of credit lines determines 10% of the score, and new credit line openings determine 10% of the score.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
For the VantageScore, a similar set of categories determines the score for borrowers. Those categories include negative information, debt, age of credit, account diversity, and inquiries.
Negative information can include "late payments, collections, repossessions, defaults, foreclosures, settlements, judgments, tax liens, and bankruptcies," per VantageScore.