Your credit scores say a whole lot about your personal financial health. It is the key factor that determines if you’ll be approved for a loan or turned down.
Credit scores are calculated based on some specific parameters including your credit mix, payment history, and amounts owed, etc. you can learn more about the five key factors that make up your credit scores.
Since your credit score is reported as figures, it is absolutely crucial to understand what does figures indicate and how they affect your eligibility for a loan. But first let’s start with the basics.
Credit Score Fundamentals
Your credit score is a set of figure that indicates the level of risks a lender takes when they offer you a loan.
The FICO score created by the Fair Isaac Corporation is still the most well-known and most widely used credit score. VantageScore created by the three key credit bureaus (Equifax, Experian, and TransUnion) is an alternative to FICO score.
Your credit scores at any specific period indicate your creditworthiness at that period. VantageScore and FICO have scores that are within the range of 300 – 850.
But how each model assign value to these figures is different. Nonetheless in both situation, the higher the credit score, the less the risk you pose to the lender.
Since FICO scores are the most widely used and mostly accepted, the scores will be used to explain what credit scores indicate in a credit report.
Exceptional Credit Score: 800 – 850
If you have a credit score that falls within the range of 720 – 850 you are viewed as consistently financially dependable in terms of managing your loan and considered a prime individual to be eligible for the lowest rates.
Nonetheless, the most exceptional scores fall in the range of 800 – 850. Consumers whose scores fall within this range can boast of a regular long history of no late payments and low balances on their credit cards.
If you have an exceptional score in the range of 800 – 850 you will end up with lower interest rates on loans, credit lines and mortgages. This is because they are considered to be at low risk of failing to keep up with their credit agreements.
Very Good Credit Score: 740 – 799
If your credit score is within the range of 740 – 799, it shows that you’re typically financially reliable in terms of finances and credit management.
It also indicates that most of your payments and that includes rentals, utilities, loans and credit cards are done at the appropriate time.
It further shows that your credit card balances are somewhat low in comparison to the limits of your credit accounts.
Good Credit Score: 670 – 739
If your credit score falls in the range of 670 and 739, it leaves you close to or slightly higher than the average United States consumers. Nationally, the average FICO score is 704 as at the last quarter of 2018.
Although, this credit score might earn a reasonable interest rates, they cannot earn the same lower rates as those in the top two categories. Also, it could be difficult for people with this score to be eligible for some types of loan.
Fair Credit Score: 580 – 669
If your credit score ranges from 580 – 669, you’re in the fair or average category of consumers.
It means you have some shortcomings in your credit history but without any significant negligence. If you’re in this category, you can still be eligible for some loans but you won’t get them at very competitive rates.
Poor Credit Score: Under 580
If you have a credit score that is in the range of 300 and 579, such credit is said to be a damaged credit history. Such a poor credit score could be an outcome of defaults on multiple loans from multiple lenders.
Nonetheless, a damaged credit score could also be an outcome of bankruptcy which can reflect on a credit report for a period of a decade.
If your credit score is in this range, you have a very slim chance of getting new credit. However, you can start rebuilding your credit. You can start with a credit repair company or you can repair our credit all by yourself.
People who has the highest credit scores actually started from a point and there’s no shame in starting from a point too.
So if your credit score is extremely low such as below 350, odds are you’re yet to have a credit history which makes it hard to establish a credit score.
If your score is in this range, don’t hesitate to reach out to our local lender to ask for its borrowing prerequisites.
As soon as you’re approved for your first loan or credit card, create a time-conscious repayment method instantly to start building your credit.
A consumer’s credit score is determined by several different factors and can be used to figure out if you’re eligible to obtain loans, the terms and that includes the interest rates.
Constantly making your bill payment at the appropriate time and in full will help avoid dent to your credit score.