Bad credit generally means a FICO score below 580, the cutoff for FICO’s “Poor” tier. Under VantageScore, the other widely used model, anything from 300 to 600 is labeled “Subprime.” Landing in either range signals high risk to lenders, and it changes what you can borrow, what you pay for it, and even what you’re charged for things like car insurance and a rental deposit.
Where the “Bad Credit” Line Falls
Both FICO and VantageScore run from 300 to 850, but they cut the scale into different tiers.1Federal Trade Commission. Credit Scores | Consumer Advice
FICO, the model behind most lending decisions, uses five bands:2myFICO. What Is a Credit Score?
- Poor: 300–579. Roughly 12 percent of U.S. consumers.
- Fair: 580–669.
- Good: 670–739.
- Very Good: 740–799.
- Exceptional: 800–850.
VantageScore 4.0 uses four:3VantageScore. The Complete Guide to Your VantageScore 4.0 Credit Score
- Subprime: 300–600.
- Near Prime: 601–660.
- Prime: 661–780.
- Superprime: 781–850.
The lines don’t match. A 590 is “Fair” under FICO but still “Subprime” under VantageScore. Your score can also vary between Equifax, Experian, and TransUnion, because not every creditor reports to all three and each bureau may hold slightly different data on you.
Lenders draw their own lines on top of these tiers. The Consumer Financial Protection Bureau describes anything below 580 as “deep subprime” and 580–619 as “subprime.”4Consumer Financial Protection Bureau. Borrower Risk Profiles Most conventional mortgages require at least a 620. FHA loans allow scores as low as 500, but only borrowers at 580 or above qualify for the 3.5 percent minimum down payment; from 500 to 579 you’re limited to 90 percent financing, and below 500 you don’t qualify at all.5U.S. Department of Housing and Urban Development. Does FHA Require a Minimum Credit Score and How Is It Determined?
What Pushes a Score Into Bad Territory
FICO weighs five categories, and two of them do most of the damage when scores fall.2myFICO. What Is a Credit Score?
Late and Missed Payments
Payment history is 35 percent of the score, the single largest factor. A payment reported 30 days late can knock off as much as 100 points, and the higher your score was to start, the harder it falls. That late payment stays on your report for seven years, though its weight fades as it ages.
High Credit Card Balances
Credit utilization — the share of your revolving credit you’re using — accounts for 30 percent. Carry a $3,000 balance on $10,000 of total limits and you’re at 30 percent. FICO’s own data shows people with the highest scores keep utilization under 10 percent, and your score improves gradually the lower it goes.6myFICO. What Should My Credit Utilization Ratio Be? The often-repeated “stay under 30 percent” is a rough guideline, not a threshold that unlocks anything.
Short or Thin Credit History
A low score doesn’t always mean you’ve mishandled credit. A thin file — fewer than five accounts, or a history shorter than six months — simply doesn’t give the model enough data. You need at least one account open for six months with recent activity to generate a FICO score at all. This is different from bad credit built on missed payments; it’s the absence of a track record rather than a bad one.
Too Many Recent Applications
Each application creates a hard inquiry. One inquiry usually costs fewer than five points and recovers within months, but a cluster of applications in a short window can pull the score further. Rate-shopping is treated more leniently: most scoring models count all mortgage or auto loan inquiries within a 14-to-30-day window as a single inquiry.
Derogatory Marks and How Long They Stay
Some negative entries carry more weight than a single late payment, and each one comes with its own reporting clock under the Fair Credit Reporting Act.
Charge-Offs
A charge-off is what a creditor records when it gives up on collecting and writes the debt off as a loss. That happens after about 180 days of nonpayment on a credit card, or roughly 120 days on an auto loan. The charge-off stays on your report for seven years from the date of the first missed payment that led to it.7Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports You still owe the money, and the account may be sold to a collector.
Collections
When a debt goes to a third-party collector, a separate collection account appears on your report on top of the original delinquency. Collections run on the same seven-year clock, starting from the original delinquency date.7Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports Settling for less than the full balance shows up as “settled” rather than “paid in full,” but resolving the account is still better for your longer-term score than leaving it open.
Bankruptcy
Bankruptcy is the heaviest mark a credit report can carry. Federal law allows it to be reported for up to 10 years from the filing date.7Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports In practice, the three major bureaus remove a completed Chapter 13 after seven years from filing, while a Chapter 7 stays the full 10. The score impact fades over time; a bankruptcy from eight years ago hurts far less than a recent one.
Judgments and Tax Liens
Civil judgments and paid tax liens are subject to the same seven-year reporting limit under the FCRA.7Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports In 2018, the three major bureaus voluntarily stopped reporting most tax liens and civil judgments over data accuracy concerns, so these may not appear on your report even when the underlying obligation is still valid.
What Bad Credit Actually Costs You
The score itself is just a number. Its effects show up in the price of nearly everything credit touches.
Interest rates are the most obvious cost. Borrowers in the deep subprime range face average interest rates around 15.8 percent on new cars and 21.6 percent on used cars, compared to about 5.2 percent for those with the highest scores.8Experian. Average Car Loan Interest Rates by Credit Score On a $25,000 loan, that gap can add thousands of dollars over the life of the loan.
Auto insurance premiums move with credit too. Most states allow insurers to use credit-based insurance scores in setting rates, and drivers with very poor credit can pay more than double what drivers with excellent credit pay. A handful of states prohibit the practice.
Rental housing gets harder. Landlords routinely pull credit, and a poor score can mean a denied application or the highest security deposit state law allows, typically one to two months’ rent.
Utility deposits often come next. Electric, gas, and water providers frequently check credit and require a deposit from customers below their threshold. These are usually refunded after 12 to 24 months of on-time payments.
Employment screening is more limited but real. Employers don’t see your score, but some pull a modified version of your credit report for positions with financial responsibility. Federal law requires your written consent, and the employer has to give you a copy of the report and a chance to respond before taking negative action based on it.9Federal Trade Commission. Background Checks – What Employers Need to Know
Individual lenders also read the story behind the number. A 590 driven by a single medical collection reads differently from a 590 built on multiple defaulted credit cards. Debt-to-income ratio, job stability, and the type of negative items on your report all feed into the final decision.
How to Move Out of the Bad-Credit Range
Recovery is gradual but the steps are straightforward. High balances can improve in a few months; recovering from bankruptcy or a string of collections takes years.
Pay every bill on time from here forward. Payment history is the heaviest factor in the score, and each month of clean payments adds data that gradually outweighs older damage. Automatic payments or reminders prevent the accidental slips.
Bring credit card balances down. Utilization gets recalculated each time a balance is reported, usually once per billing cycle, so this is one of the fastest levers you have. Aim to get each card under 10 percent of its limit if you can.
Open a secured credit card if you can’t qualify for a regular one. A cash deposit, often equal to your credit limit, backs the account. You use it like any other card, payments get reported to the bureaus, and after a stretch of responsible use many issuers will convert the account to unsecured and return the deposit.
Ask to be added as an authorized user on someone else’s card. If a family member or close friend with strong payment history adds you, that account’s history can appear on your report. You don’t need to use the card. If the primary cardholder starts missing payments, though, that damage can land on your report too, so pick carefully.
Check your reports for errors. You can pull all three for free every week at AnnualCreditReport.com, an access level made permanent after being expanded during the pandemic.10Federal Trade Commission. You Now Have Permanent Access to Free Weekly Credit Reports Checking your own report doesn’t affect your score. If you spot a wrongly reported late payment, an account that isn’t yours, or a wrong balance, dispute it with the bureau; the bureau generally has 30 days to investigate, extendable to 45 if you supply more information during the process.11Consumer Financial Protection Bureau. How Long Does It Take to Repair an Error on a Credit Report? Items the bureau cannot verify have to be removed.
Be careful with credit repair companies. Federal law bars them from charging you before completing promised work, and they have to give you a written contract with a three-business-day cancellation right.12Office of the Law Revision Counsel. 15 USC Chapter 41 Subchapter II-A – Credit Repair Organizations Any company that asks for upfront payment or promises to remove accurate negative information is violating the law. Everything a legitimate one does — disputing errors, negotiating with creditors — you can do yourself for free.