Credit Score Definition

What Is A Bad Credit Score?

A credit score is a number generated by the three credit bureaus based on the information pertaining to your credit report. It is calculated based on a specific formula and with the help of this score it is possible for banks, insurance companies and other lenders to assess your creditworthiness and whether you are a good or bad credit risk. Though there are several different scales of credit, if you wish to know what is a bad credit score, the usual range is between 400 and 900. If you score a 700 or 800 you are considered to be a good risk, whereas if your score is somewhere around 400, it means you are a poor risk as far as money lenders are concerned. This depends on the lender and some might even consider a 500 or 600 as a bad credit score.

Impact of a bad credit score

By knowing what is a bad credit score, you can understand the that when you apply for a student or a housing  loan, you might still be granted the loan, but the interest rate will be higher and you may have to make bigger installment payments. You will not be able to easily get credit or obtain a credit card or any other personal loans. This is because your credit history proves that you may not be able to pay the debt on the basis of your past record and, hence, many organizations may not approve your loan application. Even if some agency approves your application, you will have to accept certain terms and conditions and pay more for borrowing the money. A bad credit score will decrease your financial freedom and will affect your borrowing capacity to a great extent.

Finding out your credit score

It is important to know your credit score before knowing what is a bad credit score. You can get a free copy of your credit score from the three credit reporting agencies once a year at The three major credit reporting agencies are the Experian, the TransUnion and the Equifax. You can order for your credit score monitoring at the credit bureau sites too and gain online access to your report.

An average credit score is around 680 but this is not a fixed value depending on the borrowing practices at the moment. Lenders are wary of people who fall below a certain credit score range, as they might default. Of course, it is possible that people with an average credit score could also default with loans. But lenders calculate the risk based on the percentage of people defaulting at the various credit scores.

If you are in the category of 740 and above, you will be in the preferred category and can have maximum financial flexibility in case of loans and also interest rates. If you have a bad credit score of around 400 or so, it will be difficult to get a loan and you will have to pay high interest rates. After knowing what is a bad credit score, it is possible to look at your credit report and improve it by managing your credit in a better manner.

About the author

Brian James

US Financial specialist with a financial Master degree. Speaking about credit scores range in US, credit cards and more.

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