What Constitutes A Low Credit Score?
The credit scoring system developed by Fair Isaac and Company (FICO) was designed to have a left skewed distribution that places sixty percent of the scores between 650 and 799. The highest score you can achieve is 850 and the lowest is 300. Generally, anything under 620 is considered a low credit score. Many lenders today actually have a threshold of 700 to consider applicants for a prime or sub-prime rate on their loan.
Scoring between 620 and 699 will qualify you for a regular loan, but you will pay a higher interest rate. When you get into the low credit score range, you will need to seek other types of loans that are either guaranteed by a federal entity or secured by an equal amount of cash or collateral. Automobile finance companies, because of economic hardships and the decline of available lenders, have lowered their threshold to 570 in many instances in order to close a sale.
Your credit score is compiled by using the information on your credit report. You actually have three credit scores, one from each off the three credit reporting agencies: Equifax, Experian and TransUnion. Each of these credit reporting agencies uses a different credit report and includes slightly varied information, so therefore your credit score may vary. According to Fair Isaac, the median score should be 723, but Experian, considered by many to be the most accurate of the three, claims the average score is 678. Using this model, low credit scores would be anything below 678.
There is also a new scoring system which was developed by the credit bureaus in 2006 to make the three reports more uniform. It is called VantageScore and it scores credit reports in a range from 501 to 990 and then rates them by letters A through F. This system puts more people into the medium credit score range and lowers the amount of low credit and excellent credit applicants. Since all of the scoring is based on pool performance, the VantageScore gives a better chance for people with low credit scores under the FICO scoring system to get a loan with prime or sub-prime interest rates.