Credit Scores and Their Meanings
Credit scores are used by lenders, including banks providing any kind of loans, credit card companies, and even car dealerships financing auto purchases, to make decisions about whether or not to offer you credit and what the terms, such as the interest rate or down payment, will be; even auto insurers use and industry-specific credit scoring models to determine how much you pay for your auto insurance. There are many different types of credit scores - FICO® Scores and scores by VantageScore are two of the most common types of credit scores, but many industry-specific scores also exist.
A credit score is a number generated by a mathematical formula that is meant to predict credit worthiness. Credit scores range from 300-850. The higher your score is, the more likely you are to get a loan. The lower your score is, the less likely you are to get a loan. If you have a low credit score and you do manage to get approved for credit then your interest rate will be much higher than someone who had a good credit score and borrowed money. So, basically, having a high credit score can save many thousands of dollars over the life of your mortgage, auto loan, or credit card.
Credit Score ranges and Their Meaning
800 and Higher (Excellent) - With a credit score in this range no lender will ever disapprove your loan application. Additionally, the APR (Annual Percentage Rate) on your credit cards will be the lowest possible. You’ll be treated as royalty. Achieving this excellent credit rating not only requires financial knowledge and discipline and, but also a good credit history. Generally speaking, to achieve this excellent rating you must also use a substantial amount of credit on an ongoing monthly basis and always repay it ahead of time.
700 – 799 (Very Good) - 27% of the United States population belongs to this credit score range. With this credit score range you will enjoy good rates and approved for nearly any type of credit loan or personal loan, whether unsecured or secured.
680 – 699 (Good) This range is the average credit score. In this range approvals are practically guaranteed but the interest rates might be marginally higher. If you’re thinking about a long term loan such as a mortgage, try working to increase your credit score higher than 720 and you will be rewarded for your efforts – your long term savings will be noticeable.
620 -679 (OK or Fair) - Depending on what kind of loan or credit you are applying for and your credit history, you might find that the rates you are quoted aren’t best. That doesn’t mean that you won’t be approved but, certain restrictions will apply to the loan’s terms.
580 – 619 (Poor) - With a poor credit rating you can still get an unsecured personal loan and even a mortgage, but, the terms and interest rates won’t be very appealing. You’ll be required to pay more over a longer period of time because of the high interest rates.
500 – 579 (Bad) - With a score in this range you can get a loan but nothing even close to what you expect it to be. Some people with bad credit apply for loans to consolidate debt in search for a fresh start. However, if you decide to do that then proceed cautiously. With a 500 credit score you need to make sure that you don’t default on payments or you’ll be making your situation worse and might head towards bankruptcy, which is not what you want.
499 and Lower (Very Bad) - If this is your score range you need serious and professional assistance with how you handle your credit. You’re making too many credit blunders and they will only get worse if you don’t take positive action. If you are thinking of a loan then keep in mind that if you do find a sub-prime lender (which won’t be easy), the rates will be very high and the terms will be very strict. We recommend that you fix your credit and only then move on to applying for a loan.
Contact Boe Credit Consulting today to learn how you can have the exceptional credit you deserve.
About the Author
Jeff Boe is a graduate of National American University, a Board-Certified Credit Consultant and the President of Boe Credit Consulting. He has successfully rehabilitated his own credit profile and, since 2005, has been working with consumers to educate and help them with improving their own credit.
In 2018 he started Boe Credit Consulting in order to help even more people improve their literacy as it relates to the credit system in the U.S. as-well-as to improve their credit reports and scores so they can be free to realize their financial goals.
Boe Credit Consulting specializes in helping credit-challenged consumers improve their credit reports and scores so that they can achieve their financial goals.
For more information, visit www.BoeCredit.com
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