What Is a Poor Credit Score?

A poor credit score makes it difficult to borrow money. It makes it harder to get a mortgage or an auto loan with favorable interest rates. According to Bankrate.com, the big credit bureaus--TransUnion, Experian and Equifax--use different formulas to figure your FICO score, the most common type of score. As a result, you probably have a different score at each bureau. If your low score is causing problems, you can raise it if you understand its basic composition and how to improve it.

Range and Distribution of Credit Scores

Credit scores range from 300 to 850. Fifteen percent of Americans have a score below 600, according to Bankrate. Twenty-seven percent fall between 600 and 699. The largest number of people, 45 percent, have scores from 700 to 799. Only 13 percent have scores of 800 or higher.

Significance of Scores

The significance or interpretation of your credit score depends upon the lender. Most lenders consider a FICO score of 740 or better as quite good, according to personal-finance columnist Jane Bryant Quinn in her book "Making the Most of Your Money Now." They consider a score below 620 poor. We can conclude that a score between 620 and about 740 is fair to good. The exact cutoff for a particular loan package depends on the lender.

Effects of a Poor Score

Your credit score will help determine what interest rate you get on a loan, and whether you receive quick pre-approval to borrow, according to Bankrate. A poor score means you will pay more in interest and might not even get the loan.

Similarly, a poor score will probably qualify only you for a subprime mortgage, if any, according to Quinn. With a low score, you will have trouble borrowing or will pay more to borrow.

Factors Creating a Poor Credit Score

Your credit score comes from a mix of factors, according to Bankrate. Your bill-paying habits make up 35 percent of your score. Late payments, bills in collections, and bankruptcy lower your score. Your ratio of credit used to credit available makes up 30 percent of your score. Using most of your credit lowers your score. The length and stability of your credit history counts for 15 percent. The number of new applications and your mix of credit types count for 10 percent each.

Improving Your Poor Credit Score

You can improve your score with good habits. Check your report for errors and informing the bureau in writing of mistakes, suggests Quinn. Try to pay down the balance on your debts, and always pay bills on time. Avoid opening or closing accounts.

Keep your spending within your credit limits, and try to have your credit limits raised to improve your ratios. Use credit cards instead of debit cards, and pay them off each month. If you change the habits that lowered your credit score, it will improve over time.