"Bad" credit is usually defined as a credit score under 580. A person with bad credit is considered a risky borrower, usually due to owing large amounts of money or having a history of unpaid bills and debts. Having bad credit can make it hard to get a credit card, mortgage, or other loans, too.
- Previous delinquencies
- High debt balances
- Recent bankruptcies
"Bad" credit is usually indicated by a low credit score—the numerical summary of the information in your credit report. FICO scores are one of the most widely used credit scores. They range from 300 to 850, with higher scores being more desirable.
The FICO credit score range is broken up into five ratings:
- Exceptional: 800 and above
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: Below 580
Your credit score is based on five different factors, each of them weighted differently. All of them can contribute to bad credit.
- Payment history (35%): If you have a history of delinquent debts or credit cards that you haven't paid off, you are likely to have a lower credit score.
- Amounts owed (30%): A bad credit score is often due to owing large amounts of money. The more you already owe, the less likely you are to be able to pay off new debt.
- Length of credit history (15%): If you have been reliably paying off debts for several years, you are a less risky borrower. A shorter credit history, however, will lead to a lower credit score. This is also influenced by how long individual credit accounts have been open and whether you have inactive accounts.
- Credit mix (10%): Having a variety of types of credit—such as a credit card, a retail card, a rental history, and a car loan—improves your credit score. Having only one type of credit account will lower it.
- New credit (10%): People who open multiple new credit accounts in a short period of time are statistically riskier borrowers and are more likely to have bad credit.
Having bad credit often indicates that you are riskier in the eyes of a lender, which can make it harder to get approved for new credit cards, a mortgage, or other loans. If you are approved, you may be offered only a high-interest rate or other unfavorable terms.
Bad credit can impact other areas of your life as well. If you have bad credit, landlords may not accept you as a renter, or may only agree if you have a co-borrower. It can even make it harder for you to get a job if your potential employer checks your credit score as part of your job application.