In the world of finance, it’s common to hear people bragging about their credit scores. These badges of money honor are one famously important indicator of how accomplished a consumer appears. The higher, the better, and so – when talked about openly – it’s most often the big numbers you’ll hear about.
What about those who are hanging out at the bottom? Their credit history may not be a sign of good times or wise decisions. Perhaps, they suffered from a horrible loss (such as a medical disaster or business failure) and their credit took the worst kind of hit. If everything that could go wrong, did go wrong, what kind of credit score numbers would we be talking about? When we open our dark, skeleton-filled financial closets, what is the lowest credit score that could be lurking there?
How Low Can FICO Go?
One of the scoring options used for evaluating personal credit, FICO (Fair Isaac Corporation), is used in over 90% of credit decisions, and it ranges from 300 (the lowest) to 850 (the highest). But just because you’re hanging out well above the 300 mark, doesn’t make your credit “good.” In fact, most lenders consider anything below 600 in the “poor” range, and you’ll find it hard to qualify for the best credit, mortgage, and loan offers available.
If you’re sitting at a 579 or lower, Experian lumps you into this substandard group. They have determined that 61% of consumers in this category are likely to become seriously delinquent, or even default on a loan, in the future. So, even if you aren’t anywhere near the 300’s, you could still have problems getting good rates, an adequate credit line, or access to the better utility plans offered in your area.
Who determines what is a “bad” or “poor” score? It’s not FICO or the other reporting companies. They just supply the number, which is an indication of your risk to lenders. It’s the lenders themselves that make the determination of whether a score can pass their lending rules. So, a consumer who can’t get a mortgage from one bank with a 620 score, may be able to get one with another lender. While the scores are standard, how they are interpreted isn’t.
What Creates a Low Credit Score?
Responsibility with payments is just one factor that affects your score. A serious delinquency, history of late payments, bankruptcy, or default will certainly lower your score. Most people at the bottom of the score range have had at least one of these, and possibly more. You can also have a lower score if you are paying responsibly but are using up most of the credit available to you. (Keeping your ratio of debt to available credit below 30% is key to keeping your score from dragging at the bottom.)
These aren’t the only things responsible for a lower score, however. Having a no credit or only very new credit can also lead to a poor rating. A recent Consumer Financial Protection Bureau report revealed that 26 million adults in the United States don’t even have a credit record, placing them in the same position as those with delinquencies when it comes to accessing credit services.
This is also why experts recommend that you participate in consumer behaviors that contribute to a score, even if you don’t personally favor the use of credit. You can start with a secured credit card that only allows you to charge what you’ve put as a deposit on your account. Asking your rental landlord to report your on-time payments to a reporting bureau can also help.
Can I Get Credit with a Low Score?
The short answer is “yes.” In fact, there is a whole suite of services, loans, and cards designed for the consumer with a low score. While it’s not likely to get access to much with the absolute worst score of 300, anyone in the poor range can benefit from a secured credit card, getting a co-signer, or being added as an authorized user on an existing credit card account. Just be sure you treat these options seriously, pay on time, and do the things needed to raise your score and get access to better credit solutions over time.
Another thing to remember is that banks aren’t limited to just using your credit score in qualifying you for credit. While one important factor, they also rely on your wages, job history, and income sources such as child support or alimony. The score is just part of a whole picture lenders look at to determine credit worthiness.
What’s Next for Credit Scores?
Despite feeling like having a low credit score is a lonely place to be, it’s not. While less than 5% of consumers have a FICO score at the 300-499 level, 20% still fall in the range under 599 – considered “poor” by most lenders. This shows that credit is still an issue for a good portion of the population and one that will take years to correct.
It’s not a reason to lose hope, however. The trend is pointing up, showing that the average credit score hit 700 for the first time ever in April of 2017. This may be because consumers have unprecedented access to see their scores through free or low-cost platforms (including as part of the FICO Open Access program or their credit card statements.) The U.S. economy is also credited for much of the gain, with Experian noting an upward trend since the end of the Great Recession. This same Experian study reported that scores above 800 finally outnumbered those below 600 – a first for U.S. credit holders.
Maybe, then, we are asking the wrong question. Instead of asking “how low can I go?” we should look at how high we must reach to live the life we seek. Often, the difference in getting what we need is a matter of a few easily attainable points.
This article was originally written on November 30, 2017 and updated on October 17, 2019.