When a borrower fails to make scheduled payments, he incurs a bad credit history
. The failure of repayment may be due to various reasons like too much of loan taken, illness, personal financial loss or loss of job. Any kind of late payment, bounce check, insufficient money in the account or default or delay will have an adverse effect on the credit history of a borrower.
Basically two types of credit scoring exists the FICO and the Vantage scoring system. What might stand to be a fair credit score in FICO, will be a bad credit score for Vintage. The basic difference between the two scoring system is that while a FICO score range lies between 300-850, Vintage score range starts from 501-900. This difference in the base range of scoring creates a lot of discrepancy and therefore, FICO has been adopted by most of the credit card agencies as the scoring system to ascertain the credit history of a person.
Bad Credit Categories as per FICO
The following represents the different categories of debtors with a bad credit score. Based on how bad the credit history of a debtor stands, financial lenders will group borrowers in the following credit categories as per FICO scoring system.
A-minus credit (FICO Score 575 to 619)
FICO follows the following credit score pattern -
Excellent: 750 and up
Good: 720 to 749
Fair: 660 to 719
Uncertain: 620 to 653
Poor: 619 or lower
A-credit score is ascertained to borrowers with not so serious defaults in the last twenty four months. Charge offs on small accounts like holdings of less than $500, late payment of hospital bills are not taken as serious offences. Under this category of scoring, a borrower gets a lease of more than two thirty days of late repayment or can avail to make only one late repayment of sixty days.
B credit (FICO Score 575 to 619)
This category of borrowers comprises of those who have made some or the other kinds of not so serious defaults within the last eighteen months. Borrowers of this group are allowed a late payment of thirty days four times or in case of late payment for sixty days for a maximum of two times. In case the borrower has made a default which was an isolated incident then a ninety days late payment is accepted in the last twelve months. Charge offs for less than $1000 are accepted and not taken as a serious credit offence. Any kind of foreclosure settled before the eighteen month time period is accepted.
B- To C credit (FICO Score 525 to 574)
This category accepts defaults within the last twelve months. Borrowers are allowed six thirty days’ late payments and only three late payments of sixty days or a maximum of two ninety days late repayment of loan amounts or monthly instalments. Charge offs above $4000 are not accepted. Foreclosures before the time zone of twelve months are accepted.
C- To D credit (FICO Score less than 525)
This is the lowest credit score that a borrower can be given and loan takers of this credit score are considered the worst lot of borrowers with total disregard for timely payments of installments and callousness. Mortgage payments of more than ninety days are not accepted in this category. When taking loans the borrowers belonging to this category have to pay higher interest rates and are asked to keep collaterals against their loan amount as a security for their payments.