Man using smart phone at a cafe to check his credit score.

What Is Considered Bad Credit?

Andrew Dehan5-minute read
March 29, 2021

Most consumers recognize that having a good credit score is helpful when it comes to many aspects of their financial life. But what many might not know is just how impactful badcredit can actually be.

How far-reaching are the effects of a bad credit score, though? Let’s take a look at how those little three numbers can make or break many of your life plans.

What Does A Credit Score Affect?

Your credit score can be taken into account anytime you apply for a financial product. This is true whether you’re trying to open a new bank account, credit card, or home mortgage. A low credit score can affect your ability to obtain any and all of them.

It makes sense that lenders would want to know your credit history before approving your application for these sorts of accounts. After all, knowing your financial past can help them assess your likelihood of

  • Making on-time payments
  • Responsibly managing account balances
  • Avoiding charged-off debt or going into collections
  • Maintaining a responsible credit utilization

With this information, lenders are better able to ascertain whether you will be a responsible account holder and whether they feel comfortable lending to you. Your credit report and subsequent score(s) will then be used to determine approval as well as the interest rates and terms that you may be offered.

However, there are also a few surprising instances when your credit will be taken into account, many of which you might not expect. These often include shopping for new auto insurance coverage, opening a utility account, or even renting an apartment.

The Effects Of Bad Credit

If you have a low credit score, you may find yourself in a variety of undesirable situations. These include:

  • Getting denied for loans, financial products, or even jobs/housing
  • Being charged higher interest rates on loans and credit cards
  • Needing co-signers or security deposits on certain accounts
  • Being charged higher premiums for auto insurance

What Is Considered Bad Credit?

Depending on which credit scoring model you use, the range of poor results will vary. 

When referring to FICO® Scores, anything below 620 falls into the “bad” credit score category. Using VantageScore®, this is anything under 600.

While these are the two most popular, there are many credit scoring models available. Each has its own range of scores, but it’s safe to say that if you are below 600-620, you have what’s considered bad credit.

Can Having Bad Credit Affect You Getting A Job?

According to a recent survey by CareerBuilder, as many as 21% of employers will run a credit check on applicants prior to hiring them. This credit check is limited in scope – it will only show things like open lines of credit, existing debt balances, and negative reports (such as late payments and bankruptcies). However, it can be enough to give a potential employer pause.

Employers argue that bad credit can be an indicator of poor decision-making skills, or that an employee in financial distress is a risk factor for potential fraud or theft. While this is certainly not the case for everyone, bad credit canbe impactful enough to make an employer reconsider your job offer.

What Can Make Your Credit Score Go Down?

There are several financial missteps that can cause your credit score to drop over time. A few of them include:

  • Late payments: Typically, creditors will report payments as late at the 30-, 60-, 90- and 120+-day marks, and can have a cumulative effect on your score.
  • Too many inquiries: Hard credit pulls are notated on your credit history, and more than a few each year can ding your score.
  • High credit utilization: Using too much of your available credit can indicate financial trouble. A high credit utilization is an easy way to bring down your score.
  • Charge-offs, collections and settlements: Failing to not only keep accounts in good standing but to correct missteps can lead to things like collection attempts, charge-offs (where the lender writes off your debt after 120+ days), and settlements for less than you owe. All of these can have significant impacts on your score.

The specific calculations used in today’s credit scoring models are tightly held secrets, so it’s difficult to know exactly how each of these mistakes will affect you. 

Plus, credit scores are calculated based on individual factors. These include the average length of your credit history and the revolving limits you personally hold, for example. So, the impact of something like a late payment is different from one person to the next.

And unfortunately, while these credit-related mistakes are often easy to make (even inadvertently), they are much harder to escape.

How Long Does Bad Credit Affect You?

The general rule of thumb is that your negative credit reports will follow you for about 7 years. This is the case for things like late payments, charge-offs, and settlements. 

For accounts that go to collections, you may see them appear on your credit history for up to 7 years plus 180 days. This is true whether you pay off the account balance or not (though the newest FICO models do consider paid medical collections in their scoring calculations, to consumers’ benefit).

The biggest exception to this rule is bankruptcies, which will follow you for up to 10 years from the filing date. Discharged Chapter 13 bankruptcies are typically removed after 7 years, however.

Lastly, while hard inquiries are not necessarily a “negative” report, they can begin to impact your credit score if you accumulate too many in a short period of time. Inquiries will stay on your credit history for a mere 2 years, though, and they are only factored into your score for the first 12 months. 

Final Thoughts

We all expect credit scores to be important when applying for a home mortgage or getting an enviable credit card account. However, there are many other areas of our daily lives where credit scores can come into play … and having bad credit might be more impactful than you realize.

By consistently managing your accounts and maintaining responsible balances, you can help ensure a healthy credit score. This will not only unlock the door to more competitive interest rates and lender terms, but also increase the chance that you are always able to get the housing, job, or loan that you want most.

Be sure to request a free credit check and report regularly, so you can always follow your progress, or check out our free resources on credit and personal finance. You’ll be on your way to an excellent credit score in no time!

Andrew Dehan

Andrew Dehan is a professional writer who writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, daughter and dogs.