Bad Credit: Definition, Causes, and How to Improve

Key takeaways
* Bad credit usually means a history of late payments or high debt and is reflected by a low credit score.
* FICO scores range from 300–850; scores of 579 or lower are generally considered bad, 580–669 are fair.
* The most important factor in your score is payment history; improving on-time payments and lowering debt can raise your score.

What is bad credit?

Bad credit describes a pattern of missed or late payments, excessive debt, or other negative items on a credit report that make a person (or business) a higher lending risk. For most consumers, it appears as a low credit score and makes it harder and more expensive to borrow money.

How credit scores are calculated

The most common score in the U.S. is the FICO Score, which is made up of five weighted components:
* Payment history — 35%: Timely payments matter most; delinquencies hurt the score.
* Total amount owed — 30%: Includes all debts. Credit utilization (how much of your available credit you use) is a key factor; higher utilization (generally above about 20–30%) can lower scores.
* Length of credit history — 15%: Older accounts and longer histories are beneficial.
* Credit mix — 10%: Having different types of credit (mortgage, auto loan, credit cards) can help.
* New credit — 10%: Recent accounts and many recent inquiries can reduce your score.

Score ranges and risk

• 300–579: Generally considered bad credit; higher likelihood of serious delinquency.
• 580–669: Fair credit; less risky than the “bad” range but may still face higher rates.
• 670 and above: Considered good to excellent, with lower borrowing costs.

How to improve bad credit

1. Pay on time, every time
2. Set up automatic payments or reminders for all credit accounts. Payment history is the single largest influence on your score.
3. Reduce credit card balances
4. Pay more than the minimum when possible. Lowering your credit utilization ratio can improve scores within a few months.
5. Prioritize high-interest debt
6. Target high-rate balances first to free up cash faster to tackle other debts.
7. Keep old accounts open
8. Closing old cards can shorten your average account age and raise utilization; keep unused accounts open unless there’s a compelling reason to close them.
9. Avoid unnecessary new accounts
10. Limit new credit applications to avoid too many hard inquiries.
11. Use secured credit cards if needed
12. Secured cards require a deposit, can help establish or rebuild credit when used responsibly.
13. Check your credit reports and dispute errors
14. Review reports from the major bureaus (Equifax, Experian, TransUnion) and dispute inaccuracies. Credit repair companies can help, but beware of promises of quick fixes.
15. Seek help if overwhelmed
16. A nonprofit credit counselor can provide budget and repayment plans if debt is unmanageable.

How long does repair take?

Timing depends on the underlying issues:
* Paying down revolving balances can show improvements in a few months.
* Negative items like collections or charge-offs may take longer to mitigate; bankruptcies can affect credit for years.
* Consistent on-time payments is the most reliable long-term strategy.

Common questions

Can I open too many credit cards?
* There’s no fixed limit, but opening many accounts in a short time can lower your score because of multiple hard inquiries and reduced average account age.

What is the most important factor in my credit score?
* Payment history — making payments on time has the largest positive impact; missed payments can lower your score quickly.

Final thoughts

Bad credit creates barriers to borrowing and increases borrowing costs, but it can be improved. Focus on on-time payments, reducing high balances, monitoring your credit reports, and avoiding quick fixes. For severe problems, consider professional guidance from a nonprofit credit counselor.