A credit score is very important if you are planning to take a loan, whether it is for a home mortgage, to buy a new or used automobile, or money that you need for any other purpose. What is a credit score? It is an estimation of how creditworthy you are. It is a mathematical estimation arrived at based on a detailed analysis of your credit files. So if your score is higher, then you are assumed to be more creditworthy, and as a result, the lenders would be comfortable to advance you the money you need. On the other hand, if your credit score is low, then you might be denied the loan, and even if you get it, the rate of interest charged would be higher. If you have a low score, the lenders assume that it is riskier to give you the money, and thus the higher rate.
So if you are planning to take a loan, you must know two things. You need to have some idea about the credit score range, and your current credit score. The credit score range will give you an idea where you stand, when you compare your own score with it.
FICO and the Credit Score Range
FICO is the acronym of the “Fair Isaac & Company”. This is the company that came out with the mathematical calculation based on which the credit score and the credit score range is determined. Credit score is thus often also referred to as the “FICO score”.
How Is the Credit Score Calculated?
It is calculated based on various factors such as missed payments, late payments, how many open accounts you have, length your credit history, negative events like bankruptcies and charge-offs and others like this. The points that make your score will be calculated based on all of these. Points are deducted each time someone else accesses your credit score. So never make that application to different companies, because if you do, all these lenders will check your credit score, and this will undoubtedly reduce your credit standing.
There are various credit rating agencies, and all of them have their own way of assuming the importance of each factor. This is why your credit score can be slightly different from one agency to another. But taken overall, the score can give an indication to the lender about whether you are creditworthy or not.
So now that we have an idea about the credit score, and understand how it is calculated, let us find out about the credit score range.
The Credit Score Range
The credit score range doesn’t start at 0 or 1, and it doesn’t end at 100 or 1000. It starts at the odd figure of 300 and ends at 850. So no matter whether you have a good score or a bad one, the credit score range will always be within 300 and 850. You should also know that your score is usually not constant – it will keep changing. For instance, if you have taken a home mortgage, your score will improve with each monthly repayment. Again, your score will slide if you fail to make the credit payment on time.
So here’s the credit score range
- Between 700 and 850 – Very good or excellent credit score.
- Between 680 and 699 – Good credit score.
- Between 620 and 679 – Average or OK score.
- Between 580 and 619 – Low credit score.
- Between 500 and 579 – Poor credit score.
- Between 300 and 499 – Bad credit score.
So if you have a score around 750, then your application is definite to be approved. You will get very favorable terms too because you are among the most creditworthy people to any lender. If you are in the 680 to 699 credit score range, then too you can sure that your application for the loan will be accepted. Though there might be a single negative item against your name, but the lenders are likely to ignore this.
If you are somewhere in a lower category that these two in the credit score range, then it is going to become tough for you to get the loan. You can still get the loan if you have a score of at least 580, but the terms are going to be more difficult for you. While some lenders may give you the loan, but there will be others who might reject your application.
People who fall in the last two categories in the credit score range have almost zero chance of getting a loan. Their application is sure to be rejected by almost all the lenders.
Remember, while the credit score range remains constant, your score will keep changing. So if you find that your score is low, do not apply for the loan, because if it is rejected, the rejection will go into your credit history and lower your score even more. Try to improve your score and check back after some time. Apply for the loan only when you find that your score has improved.
Knowing Your Credit Score Range Is Essential To Good Financial Health
Everyone is worried about their finances. In today’s tough economic climate, making sure your finances are in order and your credit score is good is more important than ever. While most people are trying to avoid taking out extra loans and borrowing, sometimes you simply need that extra help and having a good credit score will help you secure a loan at a rate you can manage and not rack up high interest charges.
If you are unsure about your credit score, you can get your credit rating for free once a year by logging online and filling out the appropriate forms to get your free credit report. Understanding your credit report is essential to your financial health and well being, so knowing what your credit score is and where it falls on the credit score range is information you cannot afford to be without.
What Is A Credit Score Range?
Simply put, a credit score range is a specific interval in the credit scoring system. The interval is categorized and classified as either falling within the good range or the bad range. The Fair Isaac Corporation, or FICO as it is commonly referred to, judges and classifies these numbers on a scale of numbers between three hundred and eight hundred and fifty. The higher your credit score and the higher you fall on the credit score range, the better your credit has been deemed and you will get lower interest rates and have an easier time securing loans than your counterparts on the lower end of the credit score range.
While every lender has a different set of standards by which they judge a potential borrower’s credit worthiness, every lender takes a look at your credit score and the credit score range you fall in. Some lenders may consider a credit score range of five to six hundred good enough to prove credit worthiness while others will refuse to loan money to anyone with a credit score lower than six hundred and fifty or seven hundred.
Knowing where your credit score falls in the range of numbers can help you decide how to approach securing a loan. If your numbers are high, you can enter a lender with confidence and security knowing you will likely be approved. If your numbers are low, you can work to increase your score before trying to secure a loan or if time is of the essence, you can shop around for lenders who specialize in making loans to people with bad or low credit scores.
How Is The Credit Score Range Calculated?
Credit scores and credit worthiness attempt to judge the likelihood that a person will pay his or her debts. There are several credit scoring systems and every lender uses their own formulas, but all evaluate the potential risks involved in loaning money to an individual.
In the united States, the most commonly used credit scoring system is the FICO score. All lenders reward higher FICO scores with lower lending interest rates and higher approval rates. The FICO score is calculated from a statistical calculation of several factors. FICO scores use information from your past financial dealings to judge your credit worthiness today.
The FICO scoring system takes in and uses information in your credit report and past to come up with your credit score and put you within a range that falls on the scale of three hundred to eight hundred and fifty. Included in these statistics are your past credit applications and your length of credit history. The type of credit you have applied for and used is also taken into account. Credit types range from installment plans, consumer finance, mortgage or revolving option. The FICO score also takes into account how timely you are with making your payments and how much of your available credit you have used. Paying on time every month or when payments are due is the quickest way to improve your credit score or keep it high. Keeping your debt to income ration low is another good way to boost your score. Maxing out your credit limits on multiple cards or lines of credit will lower your FICO score, so be sure you limit the amount of money you owe to less than twenty percent of your income to keep your debt to income ratio low and your credit score high and to protect your credit worthiness rating.
While the actual FICO credit number score you get is important, so is the range where it falls on the credit score scale. While the range is between three hundred and eight hundred and fifty, the median FICO score is seven hundred and twenty three. It is a good idea to obtain credit reports annually from the three largest and most often used credit bureaus in the United States: Equifax, Experian and TransUnion.
All three of these accredited credit bureaus compile and asses your financial information differently to asses your credit worthiness, rating and score range. Knowing what is in these reports will give you a good idea of what your credit looks like, where you should focus to raise your score and range and what you need to do to keep your scores high if your rating is already good.
Compiling information from these three accredited and trusted credit bureaus will give you an accurate view of your financial situation and will clue you into missing information, mistakes on your credit report and any fraudulent charges, accounts or unauthorized inquiries. Not only does knowing your credit score and help you understand your financial picture, credit rating and score range, checking your reports at least once annually can help protect you from identity theft and financial ruin. By checking your reports annually, you can quickly spot accounts you did not open or inquiries you did not approve to stop identity theft and fraud before it ruins your finances and credit. Comparing your results from the three bureaus will also help you spot discrepancies and file disputes if needed to help you increase your credit score. If you see errant information, the last pages of each credit report will instruct you on how to file a dispute claim and correct mistakes or problems. Having everything correct and in order before you seek a loan will help you present a credit worthy file to the lender and will go a long way in helping you secure the loan you need.
Common Misconceptions About Credit Scores and Range
Many individuals mistakenly believe that credit scores are unchanging or long term. This is not the case. While the formula take into account long term behavior and calculates based on that information, the numbers are designed to change with your habits, timeliness with payments and how much credit you take out. Credit scores are not fixed, and in fact change all the time. It is possible to clean up a poor credit score by decreasing your debt to income ratio and by making your payments on time consistently. Conversely, a good or perfect score may dramatically plummet if your debt to income ration drastically increases or you begin to miss payments or begin to make your payments late.
Another commonly held misconception about credit scores and credit score ranges is that a third party can help clear negative entries from your FICO report and increase your credit rating and worthiness. This is simply untrue. There is no one way or key to improving credit ratings that can be effective in raising your score quickly or even overnight as some fraudulent companies claim. In the past, some unscrupulous and predatory companies were able to help people raise their credit scores by charging high fees and allowing them to co sign certain types of loans with signers with higher credit, but FICO caught on and eliminated the loophole that allowed that type of loaning and co signing. It is not what people often want to hear, but raising your credit score relies solely on your habits and behaviors. Paying all your accounts on time, every time is the quickest and only way to get your credit score where you want it to be.
While raising your credit score will not happen over night, with consistency and timely payments, you will see your score begin to rise slowly but surely every month. In fact, your timeliness with making payments comprises more than a third of your overall credit score and range, so you can see just how important and what an impact making your payments on time makes in gathering your credit score and assessing your credit worthiness. The easiest way to ensure you make timely monthly payments on all your accounts is to make sure you do not overextend yourself by borrowing more than you can comfortably pay each month. If you are considering purchasing high dollar items, saving at least half the amount before you take a loan out and buy it will help you limit your income to debt ratio and will lower the amount and number of monthly payments you need to make helping you stay on time and build your credit.
While a perfect score of eight hundred and fifty is uncommon, it can be achieved. While you do not need a score that high to get a loan at a reasonable rate, aiming for a score that high and emulating the behaviors of people with that credit score can help you raise your score and gain a firmer hold on your finances and credit worthiness. Ratings that fall within the credit score range of seven hundred and seventy five and up are considered “perfect,” and will net you quick approval and the best available loans at the lowest interest rates. Scores that fall within the three hundred to six hundred range are often not eligible for loans from reputable lenders and people in this credit score range may have to turn to extremely high interest loans to get the money they need or rely on help from a cosigner to get the money they need. In this case, the co signers signature will not help you increase your score, it will simply transfer the responsibility to them to pay your loans should you pay late or default. People who have a credit range score of six hundred to seven hundred and fifty will usually qualify for loans with a range of interest charges from low to mid range, but can usually get the money they need. For these people, if they can delay borrowing and spend a few months paying down their debts and paying on time consistently, they can increase their scores quickly and get a better interest rate when they go to secure a loan.
While finances are a headache and hassle to many people, not knowing what your financial picture and credit score rating looks like can cost you thousands of dollars and prevent you from securing a loan with favorable terms. Take control of your future and finances by ordering copies of your reports and understanding the information they contain. Once you understand where your report shows flaws and negatives, you can take action steps to correct them and increase your score. Not only will you be able to secure a low interest loan easily with a high credit score, you will have a sense of pride and peace of mind in knowing your finances are in order. Do not let your credit score scare you into inaction or leave you afraid to seek a loan, be proactive in your financial health and learn everything you can about your FICO score so you can create a plan to raise your ratings and increase your credit worthiness. No matter what your current score and range is, you can always improve it by making timely payments consistently and keeping your debt to income ratio low. Order your reports today and start making the changes you need to make to increase your score and give you the credit rating you need to get the loans you want.