Q: What is considered a bad credit score?
A: Typically, a credit score is a value expressed as a number between 300 and
850. This is the FICO score, developed by Fair Isaac & Company, but used
by Equifax, Experian, and Transunion; the three largest credit-reporting
agencies in the United States. There are other credit-scoring models, but most
lenders rely on FICO, so we'll deal with that one.
Although the worst possible credit score is theoretically 300, scores below
500 are pretty rare. Prosper.com, the popular person-to-person lending site that
helps people with bad credit find loans, will not match lenders with borrowers
of scores below 520, and considers anything under 560 to be a "high risk" credit
People with credit scores below 620 typically do not qualify for the best
loans. Instead, they get the infamous "subprime" loans. Therefore, 620 could be
considered the cut-off point for "bad" vs. "good" credit -- but of course it's
more complicated than that. Whether your credit is "bad" or "good" is really in
the eye of the beholder -- the potential lender. If you're applying for
financing on a Rolls Royce, then probably anything under 760 would be considered
"bad," but if you're applying for a new cell phone, the creditor may think a
score of 640 is great!
The median FICO score in the U.S. is 723; meaning that half of all people
have a score higher than that, and half have scores that are lower. The
mean-average score, however, is just 678, which tells us that there are a lot of
people with bad scores "dragging down" the average from the median.
A decent way of seeing how your credit score ranks is to look at the Prosper
grading system. As stated earlier, a score of 520-599 is "high risk" (scores
below 520 are considered beyond high risk), but here are the other grades
on the Prosper scale, along with corresponding credit scores:
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