What is a bad credit score?

Having bad credit can make it more difficult to achieve financial milestones, such as being approved for an auto loan or mortgage.

But there are steps you can take to repair your credit history.

Lenders look closely at your credit report when determining whether you should qualify for credit cards or loans. One factor they consider is your credit score, a three-digit number calculated by analyzing your financial actions — such as debt and payment history, the age of your accounts and your credit mix.

If you have a less-than-stellar credit score, take action as soon as possible.

Credit score ranges vary based on the scoring model used (FICO versus VantageScore) and the credit bureau that pulls the score (Experian, Equifax or TransUnion).

These are estimates from Experian.

FICO Score:

• Very poor: 300 to 579
• Fair: 580 to 669
• Good: 670 to 739
• Very good: 740 to 799
• Excellent: 800 to 850

VantageScore

• Very poor: 300 to 499
• Poor: 500 to 600
• Fair: 601 to 660
• Good: 661 to 780
• Excellent: 781 to 850

Credit scores are calculated differently depending on the credit scoring model. Here are the key factors FICO and VantageScore consider.

FICO Score

1. Payment history (35% of your score): Whether you've paid past credit accounts on time
2. Amounts owed (30%): The total amount of credit and loans you're using compared to your total credit limit, also known as your utilization rate
3. Length of credit history (15%): The length of time you've had credit
4. New credit (10%): How often you apply for and open new accounts
5. Credit mix (10%): The variety of credit products you have, including credit cards, installment loans, finance company accounts, mortgage loans and so on

VantageScore

1. Extremely influential: Payment history
2. Highly influential: Type and duration of credit and percent of credit limit used
3. Moderately influential: Total balances/debt
4. Less influential: Available credit and recent credit behavior and inquiries

Having poor credit can impact your financial life in several ways

Denials of loans and credit cards

A bad credit score can reduce your chances of approval for credit cards and loans. If you want a balance transfer card, such as the Discover it® Balance Transfer, you'll need good or excellent credit.

And if you want to earn rewards or receive luxury travel perks, it'll be near impossible to find a card that accepts bad credit.

Less favorable loan terms

If you're approved for a card or loan with bad credit, odds are you'll receive less favorable terms, such as high interest rates or annual fees. For example, one of CNBC Select's best credit cards for bad credit, the OpenSky® Secured Visa® Credit Card, has a $35 annual fee; though there are no annual fee options.

Limited credit card choices

Bad credit limits which credit cards you can qualify for; the options you have will be primarily secured cards. While a secured card, such as the Discover it® Secured Credit Card or the Capital One Platinum Secured Credit Card, can help you rebuild credit, you're required to make a security deposit — typically $200 — to receive an equivalent line of credit.

Take note that even if your credit score falls within the bad range, that is not a guarantee you'll be approved for a credit card requiring bad credit. Card issuers look at more factors than just your credit score, including income and monthly housing payments.

If you have bad credit, take some time to review your credit score and identify the cause. Perhaps you've missed payments or carried a balance past your bill's due date. To achieve a fair, good or excellent credit score, follow the credit-building tips below.

• Make on-time payments. Payment history is the most important factor in your credit score, so it's key to always pay on time. Consider setting up autopay to ensure on-time payments, or opt for reminders through your card issuer or mobile calendar.
• Pay in full. While you should always make at least your minimum payment, we recommend paying your bill in full every month to reduce your utilization rate, which is the percentage of your total credit limit you're using. To calculate your utilization rate, divide your total credit card balance by your total credit limit.
• Don't open too many accounts at once. Every time you submit a credit application, whether it's a credit card or loan, and regardless if you're approved or denied, an inquiry appears on your credit report. Inquiries temporarily reduce your credit score by roughly five points, though they rebound within a few months. Try to limit applications as needed and shop around with prequalification tools that don't hurt your credit score.

Many services will share your FICO® Score or VantageScore for free. Here are some popular options.

• Experian Boost® (FICO® Score)
• Discover Credit Scorecard (FICO® Score) Available only for Discover cardholders
• CreditWise from Capital One (VantageScore)
• Chase Credit Journey (VantageScore)