What Makes a Credit Score Bad?
Your credit score is determined using a software that weights different factors of your credit history. FICO scores are the most commonly used.
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Scoring System
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FICO scores can range from 300 to 800; the higher your score, the lower the credit risk to lenders. In general, any score of less than 600 is not great, but a score of less than 500 is considered high risk and will make it difficult for you to secure credit with reasonable terms.
Calculation
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The FICO system utilizes a method that gives different weights to several facets of your credit history. These include payment history (35 percent of your score), amounts owed (30 percent), length of credit history (15 percent), types of credit (10 percent) and new credit (10 percent).
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Payment History
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Factors that will lower your score in this category include late payments, charge-offs, defaulting on accounts, repossessions and bankruptcies.
Amounts Owed
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If you have a high debt-to-income ratio--you owe an amount that is large relative to your income--your score will be lower in this category.
Length of Credit History
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The longer your (positive) credit history, the higher your credit score. If you have only a few months of credit history, even if it is a positive payment history, your score will be lower in this category.
Types of Credit
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Having various types of accounts, including secured or unsecured credit, raises your score. If you have only revolving credit, which are generally credit card, your score in this category won't be good.
New Credit
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This portion of your score considers your recent use of credit. If you recently opened multiple accounts at once or have a sudden increase in the number of credit inquires on your account, your score will be negatively impacted in this category.
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Resources
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