What Does It Mean If Your Credit Score Is Less Than 600?

Your FICO credit score is a number that ranges from 300 to 850 based on your credit report, which helps lenders determine how risky a borrower you are. A score below 600 generally is not considered to be a good credit score and may limit the loans and credit cards you qualify for, as well as result in higher interest rates when you borrow money.

Is 600 considered a good credit score?

The short answer is no. A FICO credit score of 600 is not good, but it's not exactly terrible, either. FICO scores range from a low of 300 to a high of 850, and the average consumer has a score of 700 -- so 600 is significantly below average. However, according to FICO's guidelines, it's above the range that would be considered poor credit.

Data source: www.MyFICO.com.

A FICO score of 600 would be considered the lower end of "fair credit." Depending on how far below 600 your score lies, you could be considered to have either fair or poor credit.

Generally speaking, a fair credit score means that, while many lenders will approve borrowers with scores in this range, it's below average, and therefore represents a greater risk to the lender. On the other hand, poor credit scores tell lenders that you are a highly risky borrower, and many may be reluctant, or unwilling, to lend to you.

Here's a rundown of what it means for three common types of borrowing -- mortgages, auto loans, and credit cards.

Image source: Getty Images.

Your mortgage options may be limited -- and costly

The bare minimum FICO score to be approved for a conventional mortgage loan is 620 as of this writing, and many borrowers find it difficult to get approved without a score that's significantly higher than this. With a credit score below the 620 cutoff, an FHA mortgage may be the only option available to you.

FHA mortgages are available with down payments of just 3.5% to borrowers with credit scores as low as 580, and if a borrower is able to put 10% down, the credit score requirement drops to just 500. And because the mortgage will be insured by the FHA, the interest rate will be competitive with the market average, since it represents a relatively low risk to the lender.

The caveat is that, because you're a generally high credit risk, there are other expenses to worry about. With an FHA loan, you'll need to pay mortgage insurance, both up-front and continuously. For low-down-payment loans (less than 10% down), this expense must be paid for the life of the loan.

Buying a car can be expensive

While an FHA mortgage can be significantly more expensive than a conventional loan because of the government guarantee that your FHA mortgage insurance premiums buy, there isn't much of a difference in interest rates between what good-credit borrowers and fair-credit borrowers pay. Auto loans for people with so-so credit, also known as subprime auto loans, don't have a guarantee, so lenders tend to charge borrowers with lower credit scores much higher interest rates to compensate for the risk.

For example, let's say that you want to buy a $20,000 used car and would like to finance it over 48 months. Here are the current national average interest rates, broken down by credit score, and the corresponding monthly payment for each tier.

Data Source: www.MyFICO.com. Interest rates as of 8/25/17.

With a FICO score of 600, you'll pay $562 per month, which translates to a total of $26,976 over the four-year term of the loan. On the other hand, a borrower with a FICO score of 750 would pay a total of $21,840. This means that, because of your FICO score of 600, you could pay nearly four times as much interest as a top-tier borrower would for the exact same car.

Most credit cards will be off-limits

The top-notch credit card offers are generally reserved for borrowers with excellent credit histories. Borrowers with average credit -- the "good" range in the chart -- also have many high-quality credit card products available to them. On the other hand, there aren't many options for people with fair credit, especially at the low end of the range.

For example, a quick glance at Capital One's current credit cards shows 13 different products. Eight of them specifically say that they're designed for people with "excellent credit." Four are for consumers with "average credit." Just one is listed for people who are "rebuilding credit," and it's a secured credit card product -- which means that you'll need to put down a deposit to get it.

What you can do about it

Unless you're in immediate need of a new house or car, the best thing you can do if your credit score is below 600 is to focus on improving your score. Aside from paying all of your bills on time, there are several good credit behaviors you can implement in order to gradually increase your score. Although there's no legitimate way to go from fair to excellent credit overnight, you may be able to produce a meaningful boost in your FICO score faster than you think.