When most people worry about whether they have good credit or bad credit, they’re thinking about their credit score. This three-digit number between 300 and 850 provides a quick snapshot of how responsible and reliable you are at managing and paying off your debt.
In today’s economy, some experts will say you have bad credit if your score is 675 or lower; a score of 620 or lower will typically be classified as subprime, says Liz Pulliam Weston, author of “Your Credit Score.”
Here are the five main credit score components and how much weight they carry:
- Paying bills on time, every time (35 percent).
- The amount of credit you’re using compared to the amount available (30 percent).
- The length of time you’ve had credit (15 percent).
- The length of time since you applied for credit (10 percent).
- The types of credit you use, including revolving credit card accounts and installment loans like a mortgage (10 percent).
Because each debt is weighted differently, credit mistakes have different effects. For example, if you apply too frequently for new credit cards, you may lose only a few points. Missing a credit card payment will ding your score far more, says Weston.
The more mistakes you make, the lower your credit score will be and the more likely you will have bad credit. Bad credit, in turn, will make it harder for you to get a mortgage loan, a car loan or a student loan. It will also make it more difficult to get a credit card. If you do receive a loan or a credit card, bad credit means that you will likely have to pay a higher interest rate on the money you borrow, says Weston.