Can Your Credit Score Go Negative? An Explanation
Understand the real boundaries of credit scores. Learn why they're never negative, how they're calculated, and what a low score truly means.
Credit scores are numerical representations of an individual’s creditworthiness, designed to help lenders assess risk. They provide a quick snapshot of how reliably someone has managed financial obligations. Credit scores always remain above zero.
The Range of Credit Scores
Credit scoring models, such as FICO and VantageScore, establish specific numerical boundaries. Both models range from a low of 300 to a high of 850. These scores are always positive integers, meaning they cannot fall below the minimum floor of 300.
Even individuals facing severe credit challenges, such as bankruptcies or significant delinquencies, will have a score at the bottom of this positive range. For instance, a FICO score of 300 is considered “poor.” VantageScore models also categorize scores in the 300-499 range as “very poor” or “subprime.”
Key Factors That Affect Your Score
Several primary components contribute to a credit score. Negative actions in these areas can significantly drive a score downward. Payment history is the most important factor, accounting for approximately 35% of a FICO score. Late payments, defaults, and accounts sent to collections can substantially reduce a score.
The amount owed, also known as credit utilization, makes up about 30% of a FICO score. This factor considers the percentage of available credit being used; maintaining high balances on revolving accounts, especially near credit limits, signals higher risk and can lower a score. The length of credit history contributes around 15% to a FICO score, reflecting the age of accounts and the overall time credit has been managed. A longer history of responsible credit use is generally viewed favorably.
New credit inquiries and the credit mix also influence scores, each typically accounting for about 10% of a FICO score. Opening multiple new credit accounts in a short period can suggest increased risk to lenders, leading to a temporary dip in score. A diverse mix of credit types, such as installment loans and revolving credit, can indicate responsible management of various debt forms.
What a Very Low Score Means
A credit score at the lower end of the established range, generally below 580 for FICO or 500 for VantageScore, carries substantial practical implications. Lenders typically view scores in this range as “poor” or “very poor” and indicative of a higher risk of default. This can significantly impact an individual’s ability to obtain new credit, including credit cards, personal loans, or auto loans.
When credit is approved with a very low score, it often comes with less favorable terms, particularly higher interest rates. For instance, a borrower with a FICO score below 580 might face interest rates about 8.5% higher than those with scores above 720. This translates to higher monthly payments and a greater overall cost of borrowing over the life of a loan. For example, a lower credit score could add tens of thousands of dollars to the total cost of a mortgage.
Beyond loans, a low credit score can affect other aspects of financial life. It may lead to difficulties in renting an apartment, as landlords often check credit reports to assess reliability. Certain types of insurance, such as auto insurance, can also be more expensive for individuals with lower scores. In some cases, a poor credit history might even impact employment opportunities, particularly in financial sectors.