Generally, a bad credit score is anything below 600. A low credit score can stand between you and your goals. You can get rejected outright — or get approved, but at a much higher interest rate than if your credit score were better. Luckily, your credit score is only a picture of your credit report at that moment, and it can change. Let’s explore what causes lousy credit and ways to improve it.

Range of Credit Scores

Credit scores typically range from 300 to 850 based on the FICO® score. The higher your credit score is, the better. Each lender determines what it considers a good or bad credit score. Although variations exist, there are general guidelines to give you an idea.

The FICO® guidelines for a credit score range:

Excellent credit: 800+
Very good: 740 to 799
Good: 670 to 739
Fair: 580 to 669
Poor: 300 to 579

According to FICO®, the average American’s score is 704. However, 20 percent of Americans score under 600.

Although there is a difference between a fair credit score and a bad credit score, it’s important to note that many lenders will consider consumers with a score under 600 as credit risks.

What Causes a Bad Credit Score?

Reasons for a negative credit score come in many forms, including:

Overdue bill payments
Maxed out credit cards
Charge offs and collection accounts
Foreclosures
Identity theft
Excessive third-party inquiries

Each item has its level of severity and the power to damage your credit score. There is a chance the cause of your low credit score is simply human error. A credit report consists of information that’s passed from consumer to lender to credit bureau. Over 26 percent of credit reports have errors in them. Be sure to check your credit report regularly.

What to Expect With Bad Credit

If you have a credit score of 600 or lower, lenders consider you more of a financial risk, and some may even reject you outright.

Lenders will decide the risk they are willing to take in extending credit. Some companies only work with excellent credit, so even someone with a score of 700 could be turned down. If a lender does extend your credit, you’ll pay more in interest than someone with a higher credit score.

You won’t qualify for zero percent interest credit cards or personal loans at single-digit interest rates with a low credit score. You’ll face higher auto and mortgage finance rates as well, and you may get stuck paying a utility deposit that someone with a higher score doesn’t have.

How Much Does Bad Credit Cost You?

Having a bad credit score can lead to many consequences. It communicates to lenders that you have a history of poor borrowing habits and are a risky investment.

In turn, a bad credit score can cost you money. Since you’re considered less creditworthy, lenders will adjust the terms of a contract by applying higher interest rates and other unfavorable terms.

Over time, this can create quite a dent in your wallet. For example, a typical home can cost between $50,000 and $130,000 more in interest if you are buying with bad credit.

Banks are not the only ones looking at your credit score. Many institutions make assumptions about you based on your credit history. Landlords, car dealerships, insurance companies, and potential employers can check your credit.

Bad credit could be the reason for being denied an apartment, not being able to afford a car, increased insurance premiums, or even getting rejected for a new job. This three-digit number is more than just a score — it’s also your financial reputation.

Tips to Improve Your Credit Score

If you’re having trouble getting approved for a credit card or loan, you have options to work towards building your credit score.

Consider the following tips:

Become an authorized user on someone else’s account.
Get a cosigner who has excellent credit. The lender will consider your cosigner jointly responsible for any debt.
Open a secured account. You can put cash in an account, and the issuer will allow you to borrow up to a certain percentage of the money.
Work to pay off your debt and keep balances low.
Keep unused credit cards open.

Because credit impacts so much of our lives, a low credit score can be extremely harmful to your financial goals and lifestyle. Fortunately, improving your score is possible. This includes disputing an error, making payments on time, and paying down credit card balances.