- 1 30+ Credit Score Charts & Ranges. What is a good credit score?
- 2 Learn about your credit scores
- 3 The Shocking Truth About Your Credit Score — and Which One Really Matters
- 4 What credit score do I need for a mortgage?
30+ Credit Score Charts & Ranges. What is a good credit score?
People nowadays are becoming largely dependent upon credit as it plays a very vital role in our everyday life. Either you are a student, working professional, parent, or a business owner, every one requires credit to continue with their daily activities. For this reason, it has become essential to maintain a good credit rating. However, one can only maintain good credit history when they understand the personal credit reports and what a credit score chart is. Actually, a credit score chart measures a person’s credit worthiness, as credit is granted to a person depending upon their credit score history.
A good credit score history helps you in purchasing a number of things, no matter how big or small they are. So, do you really know what’s a good credit score? If you nodded in disapproval, then in this article, we will explore why we need a good credit score, the agencies which provide credit information, defined credit score ranges, rating charts and some tips to improve or maintain the credit score.
A credit score is popularly known as FICO score. It was started by the Fair Isaac Company; that is why it was given that abbreviation. A credit score is actually a 3 digit number that reflects the likelihood of a creditor to pay their debts. Whether you like it or not, credit scores helps gauge your financial stability, defining whether or not you are good at borrowing and returning money back to the debtor.
Credit scores are determined with the help of several models; therefore, there are chances of varying points. Considering the FICO score, which is the most commonly used model for credit scores, it has 49 different versions to it. The variations in points are dependent upon what is important for the company to calculate.
How is Credit Score Calculated?
Normally, the FICO score is calculated on the basis of the factors listed below;
- Types of debts you have taken: 10%
- Types of new debts you have taken: 10%
- Time duration of being in debt: 15%
- Level of debt: 30%
- Debt history: 35%
As you see, all these factors have one thing in common; all of them are analyzing debt. You need to have a higher credit score to make debtors trust you and grant you a loan, in order to make them believe that you will surely pay it back according to the specified timeline.
A good score is necessary for everyone. However, a good credit score is determined on the basis of the credit score range. Generally, FICO scores have a 300-850 credit score range; and the good score is always the higher one because a lower score is always risky for the borrower, highlighting that you might or might not return the loan promptly.
By mentioning all of this, the importance of having a good credit score cannot be understated. From qualifying to get a good job or helping you get a loan for you to afford luxuries, a good credit score can really make your life easy. We will be explaining why you need a good credit score in the next section.
On the contrary, a bad credit history can prevent from getting loans to meet your expenses. Unfortunately, if you have a bad credit history, then you need not worry; you can improve it by following some of the tips we will be discussing in the further sections.
There is no doubt that there are ranges determining a good credit score; however, there are situations where people can also have a zero credit score, which is actually a great thing, even better than a good credit score. When you fall to a zero credit rating, it actually signifies that you have a state that normally does not occur.
This means that you are free from the burden of debt. In addition to that, when you have never taken credit in the past, it is likely that you will be granted credit in times of needs, making you a very trustworthy borrower.
Why do you Need a Good Credit Score?
A good credit score helps determining your creditworthiness and trustworthiness. You should have or maintain a good credit score for a number of things. Let’s explore as to why you need a good credit score.
Often, there are employers who check the credit history of employees. Do you know why? They do this because they like hiring people who have a strong credit history, ensuring their reliability to the firm. This is the core reason why so many employers are running credit checks on their employees prior to hiring them.
The insurance companies use the credit rating as an indicator to gauge what type of rate you deserve for your homeowners insurance, life insurance or auto insurance. It is best for people to have a higher credit rating as this ultimately highlights that you have a strong position and you are worthy of obtaining credit. Additionally, it gives them the satisfaction that you will surely pay the bills promptly and it is not risky to grant you insurance. In this way, people with a high credit are likely safe homeowners, safe drivers and have a longer life.
A good and strong credit history helps you immensely when you are in the market to buy a home. Nowadays, lenders are required to have a credit score of 640 or more to purchase a home. Lenders normally do a business which is not able to guarantee them the finances they need to cover large, lump sum expenses. This usually happens when you borrow money to purchase a house. In this case, a bad credit score can really scare the real estate agents if they find you ineligible to purchase a property. On the contrary, a good credit score assures the real estate agents about the mortgage payments.
Loan Approval from Banks
You may require loan for anything such as purchasing car or any other luxury item. Banks do not just lend money to any random person without performing a background check. In addition to that, especially after the 2008 recession, lenders have become really specific about giving loans to borrowers. That is why the first thing banks require or check is your credit history or your credit score. A good credit score will surely be a signal for approval, but a bad credit history will stand in between you and your loan.
When banks see that you have maintained a good credit history, they can also decide upon your interest rates which work in your favor. Banks want you to maintain an ideal credit score that is normally above 700. Those who maintain it, can get a low interest rate on loans. On the other hand, those who have a bad credit history or score, there interest will be much higher than they expect. Ultimately, high interest rates can make it merely impossible to pay off the high amount of balance. Thus, choose to maintain a good credit score if you want to get a loan at low interest rates.
What are the Three Major Credit Agencies that Provide Credit Information?
There are agencies which hold your credit information and entire credit history. There are 3 famous and major agencies that are responsible for the consumer credit scores and information, namely, Transunion, Experian and Equifax. All three of these agencies are responsible to collect the credit history of borrowers from multiple sources.
Generally, these sources include employers, landlords, lenders, public records, payment receipts, current and past loans and some other data. On the basis of this information and data, they rate your performance accordingly with the help of a scoring system. All these agencies have different ways to calculate and use different formulae to gauge the creditworthiness of borrowers, which is why the credit scores may vary.
Understanding the Credit Score Chart
In general, every lender has its own criteria to determine the creditworthiness. Although, the best way is to break down the credit scores into ranges to know your score and where you lie. Ranges help you in comparing where you want to go and where you stand. So, here is the credit score rating chart covering the credit score ranges, from excellent to bad scores, from the perspective of the FICO scores.
Excellent Credit Score: 800 to 850
If you have an excellent credit score, then you can qualify for anything. By lying in this range, you will be favored by potential lenders. This form of credit range is considered the best one as it highlights that you have managed all your finances flawlessly. It also shows that you have a history of credit without any overdue amounts, late payments or any other negative marks. In addition to that, it shows that you also have a stable employment history with multiple established credit lines.
Very Good Credit Score: 750 to 799
More often than not, lenders do not see any difference between this level of credit score and that of the excellent one. You are surely going to be approved if you go to a lender with this credit score range. There are chances that they might even consider you excellent, even at this range. However, there is a difference in between the excellent and very good credit score range, which is the debt to income ratio. It is also worth mentioning that consumers at this level of credit score qualify for the best interest rates as well.
Good Credit Score: 700 to 749
A good credit score is also going to get approved if you ask for a loan. Being at this level also shows that you have managed your credit history very well; having had a few bumps in the long run but being a generally reliable borrower. In addition to that, the range is considered as the median credit score range. If your credit rating falls in this range, then your chances of being accepted for a loan are great.
Fair Credit Score: 650 to 699
This type of credit score range is also called as an average credit core. If you fall under this category or range, then this means that your financial situation is dwindling. This kind of range determines that you are not doing well; that you faced some trouble which caused your performance to follow a downward trend but are trying to re-build your financial position gradually. In this credit score range, you should expect a lender to charge you higher interest rates and an even higher fee along with higher insurance premiums.
Poor or Bad Credit Score: 600 to 649
No one likes to have a poor credit score range. This credit range obviously determines the negative aspects and shows that you are really at a troubling point in your life. Additionally, it points out that your hardships did not let you maintain your credit rating and that you still have some ongoing credit issues. This credit range determines that you are poor at making payments, have a low balance in your account and are out of your credit card balance. You must expect to get higher interest rates from banks and a limited selection of their products and services in this credit score range.
Very Poor or Very Bad Credit Score: 300 to 549
As it is quite obvious with its name; a borrower having a very poor credit score range will hardly be able to receive credit from banks or any other lending authority. This range determines that you are in the absolute lowest financial position possible and that you are not at all reliable for the loan. In this type of situation, you will have to face a very hard time to get credit. If you lie in this credit score range, then you need to improve your credit score immediately.
Quick Tips to Improve your Credit Score
Now that you know how much a good credit score matters, you really need to improve it if you have an average or a poor credit score. Follow the tips below to maintain or improve your credit score:
- You should pay off your bills promptly.
- You should use your credit card for the daily purchases.
- You should get a credit card with a low credit limit.
Improving and maintaining your credit score can help you save money in a lot of ways. Also, businesses use it to figure out how reliable you are and therefore, you must always aim for the highest credit score to enjoy a number of benefits. Good luck!
Learn about your credit scores
When you apply for a credit card, a loan, or even insurance, lenders check your credit score. This number is used to evaluate your creditworthiness. Your creditworthiness basically is an estimate of how likely you are to repay your financial commitments.
Your credit score can impact everything from your ability to get a loan or a credit card, to rent an apartment, to get a mortgage or even auto insurance. Your credit score can also play a role in determining your interest rates. The commonly used FICO credit score ranges from 350 (very unlikely to repay) to 850 (very likely to repay). Often a 720 or higher is considered a strong FICO credit score, but different lenders have different standards.
I heard you can have multiple credit scores. Is this true?
Yes. You can have different credit scores depending on which credit reports and which scoring models are used. There are three major credit reporting agencies that provide credit reports: Experian, Equifax, and TransUnion. There are also different credit score models that are tailored to different industries and therefore produce different credit scores. For example, your auto lender will likely use a different score model than your credit card company.
What factors make up my credit score?
Your credit score is calculated using information from your credit report. Some key factors that are used in credit scoring models are explained below.
This is the percentage of payments you’ve made on time during your credit history. It’s a factor that often weighs heavily into your creditworthiness, so just one or two late payments could significantly impact your score. If you’ve had trouble keeping up with payments, set up automatic bill pay or create calendar reminders for bill due dates.
This percentage is calculated by taking your total credit card balances and dividing that number by your total credit card limits. It essentially shows creditors how much of your available credit you use on average. A good rule of thumb is that lower credit card utilization rates are better.
The longer your credit history and the older your accounts the better. That is why it can be a good idea to keep older credit cards open and active.
Consumers with more accounts (or more lines of credit) often have higher credit scores because it indicates that more lenders are willing to give them credit. Having a good mix of different types of credit is good for overall credit health as well. But remember it is a balance and you should only open accounts you actually need.
When you apply for credit like a credit card, mortgage or auto loan a hard credit inquiry is initiated on your credit report. One hard inquiry will usually have little impact, but multiple inquiries can have a larger impact. A soft inquiry is when you check your rate to see what you qualify for. As a reminder, when you check your rates through Lending Club, this is a soft inquiry and won’t impact your credit score.
Derogatory marks are negative items on your credit report like collections, tax liens or bankruptcy. These records can stay on your credit report for 7 to 10 years. If you have one on your credit report, it can show a lender that you may have mismanaged your credit in the past.
If you want to understand how you stack up on these factors, check out Credit Karma’s free credit score overview.
The Shocking Truth About Your Credit Score — and Which One Really Matters
I swear, at least once a day I see an ad blaring “Click here to check your credit score!”
The number of companies that have apparently calculated my credit score is dizzying.
Some of you may be wondering as well: Why are there so many credit scores? What’s more, which ones actually matter? Is one better than another?
Here’s what you need to know about credit scores and how they affect you and your cash.
Your credit score is a three-digit number based on your payment history, credit utilization, length of credit history, diversity of credit, new credit and other factors.
It’s a measure of how well you’ve managed money in the past , and often used as an indicator of how well you’ll manage money in the future .
Banks and credit card companies use it to determine if they want to lend money to you — and at what rates.
Scores range from 300 to 900, with a score above 650 generally considered “good” by lenders . If your score is lower than that, you may face higher interest rates.
Why Do I Have So Many Credit Scores?
The best-known and most widely used credit scores are FICO scores , created by the Fair Isaac Corporation, a California-based software company.
Although it’s not actually a credit reporting agency, FICO uses information from the three major national credit reporting agencies — Equifax, Experian and TransUnion — to create FICO credit scores .
Of course, Equifax, Experian and TransUnion also have their own credit scores.
There’s also another up-and-coming score called VantageScore. Like FICO, it uses information from the three major reporting agencies to create its scores.
Then there are the “free” credit scores from sites like Credit Karma and Quizzle .
Each organization and credit bureau uses a different scoring model. One might use different types of data, or use the same data but weigh it differently.
There also are different types of scores within each agency depending on the industry — one score for mortgages, one for auto loans and so on. These companies frequently update their formulas, which results in new scores.
“Really, a person can have as many credit scores as there are credit scoring models,” said Thomas Bright, a spokesman for ClearPoint , a nonprofit finance education group.
Keep in mind: All of these companies are for-profit .
So why there are so many different credit scores? The short answer is because someone can make money off them . You’ll typically pay between $15 and $20 to check your credit score.
Motives aside, credit scores are useful and necessary for getting a loan or a credit card.
The score used by lenders varies , but what’s important to remember is the credit score you see online is likely different than the one your lender sees .
For example, Equifax puts this disclaimer on its website: “The Equifax Credit Score is based on an Equifax Credit Score model and is not the same as scores used by third parties to assess your creditworthiness.”
FICO scores are still most commonly used among lenders, but the dozens of scoring formulas result in you having many different FICO scores.
Some lenders even have their own scoring models.
One of the biggest misconceptions about credit scores is the idea that the one we see is the same one lenders see.
This bothers the government’s Consumer Financial Protection Bureau (CFPB) because people pay to see their credit score based on the assumption it’s the same one their lender will use to make financing decisions.
Consumers are often surprised and frustrated when they don’t get the financing terms they expected based on the credit score they paid to see.
“It is likely that many consumers incorrectly believe that the scores they purchase are the same scores used by lenders in evaluating their applications for credit,” CFPB says .
“Literally dozens of different credit models are used by lenders. FICO alone has over 49 credit scoring models.”
Bottom line: The scores that matter are the ones used by your lender , which you can’t access on your own. Other scores are educational and can give you a rough estimate of how you’re doing, but may not match up with the score your lender pulls.
CFPB found 20%-27% of consumers are likely to see a credit score significantly different than the score used by their lender — enough to put them in a different credit-quality category.
“Consumers should avoid relying on scores they purchase as the sole basis for assessing their creditworthiness when making important decisions about obtaining credit,” the bureau says.
“Each consumer should be prepared for the possibility that the score he or she sees is meaningfully different from the score used by a lender.”
What Should I Know About Credit Scores?
So, you have a bunch of different scores and you can’t guess what your credit score will look like to your lender.
It’s still important to regularly check those free or educational scores to get a general sense of what your score looks like. You should also check your credit report for errors and to prevent identity theft.
“Regardless of the credit scoring model used, inaccurate adverse information in a consumer’s file (e.g. unpaid accounts that are not the consumer’s, accounts described as paid late that were paid on time), can hurt that consumer’s credit score,” CFPB reports.
You can check your credit report once every 12 months at AnnualCreditReport.com . Each of the three national credit bureaus is required by federal law to annually provide these reports to you for free, the bureau says.
It’s also important to shop around for credit — even if lenders see the same score, they may offer you different loan terms based on their internal guidelines and other parts of your financial portfolio.
Bright suggests getting familiar with the basics — learn the raw components of a credit score so you know how your actions affect your ability to get credit .
It doesn’t matter which credit score your lender uses, as long as it’s good. Pay your bills on time — and in full — every month. Having good credit can save you thousands of dollars in the long run.
“If you worry about one thing, it should be the due date (on your bills) each month,” Bright said. “Despite how complicated this all might seem at first, simply having a perfect payment history will do wonders for your score.”
Your Turn: How much do you think about your credit score?
Sarah Kuta is an education reporter in Boulder, Colorado, with a penchant for weekend thrifting, furniture refurbishment and good deals. Find her on Twitter: @sarahkuta.
What credit score do I need for a mortgage?
The Fair Isaac Corporation is used by most lenders to check credit scores, and a FICO score helps lenders assess an applicant's credit risk for a mortgage loan. A credit score of 620 is typically the minimum score needed to qualify for most mortgages, according to the FHA Home Loans website. However, you can qualify for mortgages with a lower score.
The Lending Tree website indicates that credit scores lower than 620 are considered sub-prime. Scores between 620 and 650 are considered good, though may still be viewed a high risk. A score of 720 or above is considered excellent by the FICO scale, according to the Lending Tree website. In general, the higher your credit score, the better interest rate you will get on your mortgage loan, which can save you thousands over the life of the loan.
If your score is lower than 620, you still might qualify for a mortgage loan. Most lenders require a good or excellent credit score, but other lenders specialise in lending to low score borrowers with scores around 500, according to the Lending Tree website. However, these types of lenders require additional documentation, including older financial statements and W-2s to support the application. Beware that a higher interest rate is also common with these loans, so it might make more sense for you to work on improving your score and applying for a loan in a year or so. Both Fannie Mae and Freddie Mac offer mortgages to those with lower credit scores, according to the Lending Tree website.
It is important to understand your current credit score and avoid risk factors, which can bring your score down. However, checking credit scores too often can actually hurt your score, so check once, improve what you can and check again at least a few months later. Even if you have a low credit score around 400 or 500, you can improve it to 720 or higher within a few years. MSN indicates that to improve your credit score, you should pay down all credit card debt and catch up on any missed or late payments. Then, use the cards, but pay the balance each month rather than accumulating more debt. If any errors show up on your credit report, ask your creditors to report the fixes to the credit bureaus as soon as possible. Finally, avoid making large credit purchases prior to applying for mortgage, as the purchase can hurt your score.
While most lenders use the FICO scale to assess applicants, other lenders may use other agencies such as Scorex. FICO scales are customised to fit the lender's risk assessment. Due to this fact, applicants should be aware that different lenders might quote different scores when processing an application, regardless of creditworthiness. If you notice a significant difference from one score to another, review your credit report thoroughly to look for mistakes or items that have not been reported to all credit bureaus.
Additional Lender Considerations
It is important for applicants to understand that credit scores are not the only factor in qualifying for a loan; lenders also consider additional information. These factors include the applicant's salary, employment history, savings and debt-to-income ratio, which measures your monthly debt expenses versus your monthly income. A good debt-to-income ratio is 36 per cent or less. This is important information for applicants to be aware of because there is no numerical guarantees in the lending process, and ultimately the final decision will be made by the lender. The better your financial situation and credit score, the better chance you have for mortgage loan approval.