When you purchase an item that requires considerable money, including a car, house, and land, the company that will finance your project is likely to talk about your credit score. That is among the defining factors that lenders will consider before giving you a loan. A credit score offers the best snapshot of borrowers’ credit health. Every time a lender evaluates your credit application, they’re free to utilize credit scores as part of the process.
Your credit score determines all parts of life. If your credit score is good, you will get mortgages, insurance and car loans at reduced rates. Moreover, you will also get lower credit card rates on your loans & credit cards. In other cases, employers use credit scores for making hiring or promotions decisions. Therefore, if you’ve got the best credit score, it will positively impact your earnings. You can get emergency loans, no credit check loans, personal loans and bad credit loans if you don’t opt for a credit card.
What is a Credit Score?
It’s composed of 3-numerics derived from details on a credit report which include your payment history, credit history length, and the loan amount you have. The value ranges typically between 300 to 850. This numerical rating explains the person’s likelihood of repaying a debt. A higher score indicates that a borrower has a low risk and is more likely to repay their loan at the right time. Credit scores help the lender determine if you are qualified to get a loan, the interest rate, and the credit limit.
Credit scores differ between credit bureaus. That is because not all lenders or creditors report to these major credit bureaus. Some will report to all, others report to just one or two, and others report to none. Furthermore, several distinct credit scoring models are available, and they differ depending on the kind of loan and creditors’ preference. Among the popular credit-scoring companies includes FICO and VantageScore.
How Can I Improve My Credit Score?
Check Credit Reports Frequently
Check to confirm that the details are accurate and there are no incomplete or inaccurate account details. You will get a free copy that has your credit report after every twelve months from both the three credits. Borrowers can request a copy every four months to keep an eye on their reports year-round. Moreover, checking your credit score or credit report doesn’t impact your credit score.
Pay All Your Bills on Time
Missed or late payments on accounts, including credit cards from different credit card companies, can be reported to credit bureaus. That may negatively impact your credit scores. If you’re having issues settling your bill, you need to contact the creditor immediately. You shouldn’t skip payments even when disputing an account. In addition, filing bankruptcy can also affect your scores.
Apply for Loans Only When It’s a Must
Applying for multiple loans within a short time can affect your credit score. Only use what you can afford to pay when it’s needed most.
This is also known as credit mix. It involves managing installment accounts like a car loan, mortgage and revolving accounts which include credit cards. Being able to manage both kinds of accounts responsibly helps to improve your scores.
What is FICO?
FICO (Fair Isaac Corporation) is the first standardized scoring model. It’s over 30 years since FICO made various scoring model versions. FICO has the most used scores in the lending industry and more than 90% of top lenders around the U.S use it.
What is VantageScore?
VantageScore is similar to FICO, and it started back in 2006. It was created by Experian, TransUnion, and Equifax credit bureaus. VantageScore is the best for borrowers to monitor their scores. Moreover, VantageScore credit scores are available in free monitoring services, including CreditWise.
Experian developed this credit score and just uses information available in your Experian credit report. However, different lenders don’t use this credit score. It was to help the consumer understand their credit risk levels. PLUS score ranges between 330 and 830.
Similar to the PLUS score, the Equifax score is also an educational tool. Its credit score ranges between 280 and 850.
TransUnion is the owner of this score. It’s suitable for predicting the dangers of new credit accounts and not your capability to pay your current charges. TransRisk credit score varies from 100 to 900.
What is a Good Credit Score?
FICO scores express a borrower’s creditworthiness as numbers ranging from 300 to 850. The best FICO score ranges between 670 and 739. According to FICO, a score between 580 and 669 is fair, while between 740 and 799 is very good. Any other score which is above 800 is exceptional. FICO uses information about users from their three main credit reporting bureaus: TransUnion, Experian, and Equifax.
What is a Good VantageScore?
Like FICO, VantageScore also produces the same score using similar credit report information from three bureaus. At VantageScore, a good credit score ranges from 661 to 780, and they call it a prime credit tier. In addition, the VantageScore, above 780, is a super-prime, and those within the range of 601 and 660 are near-prime. All those below 600 are “subprime.”
How is Credit Score Calculated?
Several factors determine a FICO score. FICO calculates credit scores centered on its internal algorithms. They base the scores on information available at credit bureaus on your past and present monetary actions as stated on your current creditors. These include how much you owe, payment history, length of credit history, etc. The exact formulas they use remain a secret for them.
Credit Score Ranges
Credit scores ranging from 300 to 549 are considered harmful, 550 to 619 are poor, 620 to 679 are fair, and 680 to 739 are good. Moreover, your score ranges from 740 to 850, which is an excellent credit score. Higher scores mean you are responsible, and more lenders will be willing to offer you a loan. A credit score isn’t a direct reflection of the amount of money you make. Those with low income can have an exceptional credit score, and those with a high income can have a bad credit score.
Bad Credit Score
Lenders will reject most loan application requests when you have a poor credit score. If your score falls into this credit range, raising it needs a lot of work.
Among the things which will bring your score to this level is filing for bankruptcy. One way to improve your score from this point is to make your payments on time. Some of the loans which are hard to get with this kind of score include home loans, although there are options for getting a loan with a bad credit score.
Poor Credit Score
Lenders consider borrowers with account rejections, little credit history, and credit delinquencies as subprime borrowers and risky. However, you can get a loan with a poor credit score but at higher interest rates and unwelcoming terms. Moreover, if you violate the terms, you will have to pay a penalty fee. If in this score range, you should address every credit issue you have to improve before making a loan application.
Fair Credit Score
Borrowers within this range are more likely to get loan approval since they are less risky. Within this range, consumers become prime borrowers. Thus, they qualify to get more loan amounts, lower down payments, and higher credit limits, and they can negotiate on credit card balances and loan terms. Just 15% to 30% of borrowers within this range become delinquent.
Good Credit Score
Lenders are comfortable lending to borrowers having a score within this range. A good credit score range is between 740 and 799 Almost all loan requests for borrowers with a score within this range are approved. Besides, the loan comes with a lower interest rate. An average score in the U.S. is 723, according to FICO.
Excellent Credit Scores
Excellent credit score comes with quick loan request approvals and best interest rates helping you achieve your financial goals. Borrowers within this range have a delinquency rate of about 2%. Gaining extra points doesn’t improve the loan terms much since different lenders consider a credit score of 740 the same as 800. Nevertheless, having a higher score is advantageous when there is an adverse incidence in your report. For instance, if your credit score reduces by maybe 50 points, the outcomes won’t drag you to a lower tier.
Frequently Asked Questions About Credit Score & Good Credit Score
Which Details Don’t Determine Your Credit Scores?
VantageScore and FICO don’t consider the information below as they calculate your credit scores.
- Your salary, title, occupation, employer, employment history, or date employed. However, lenders may check these details when making their general approval decisions.
- Your gender, race, religion, color, national origin, or marital status
- Soft inquiries. Others typically initiate them. This includes companies making marketing offers of credit or the lender carrying out periodic reviews on your current credit accounts. Moreover, soft inquiries involve when one checks their credit report. Also, using credit monitoring services from brands like Experian doesn’t impact their credit scores.
- The place you live
- Your age
Which Credit Score Does One Need to Rent an Apartment?
Landlords check one’s credit history to evaluate new tenants’ risk before leasing their house. It’s always wise to assess your present financial situation, including the current amount of money you owe compared to your income. Moreover, landlords also check for any unsettled collection accounts, including rent non-payment from a previous apartment.
To rent an apartment, one must have a credit limit of 620. Without this, you require a cosigner on the rental agreement. In places with higher demand for rental properties, you will need one to pay a considerable deposit. Moreover, one may need to have rent for both the first and last months before the lease is approved. In the worst-case scenario, one must authorize an automatic payment directly from their checking account.
One factor which determines the credit score needed is the property’s location. Rental homes on the hot market will have stricter requirements. Thus anything below 700 will not be sufficient for your request approval. Moreover, competition also plays an important role. For instance, if numerous prospective tenants all come with the same profiles. The rental agency or the owner is likely to rent the apartment to an individual with the best credit score.
What is the Minimum Credit Score Required When Buying a House?
If planning to buy a house, the mortgage lender is free to check your credit history. Apart from your credit score, several requirements are needed to qualify for a home loan. To get a traditional mortgage, you must have a credit score above 640. Best mortgage rates are for those with a credit score of above 720. Those that need VA loans or FHA loans are excluded since FHA loans require a credit score of 580, and VA loans don’t have a minimum credit score.
Remember that having the required grade to qualify for a loan doesn’t guarantee that a lender will auto-approve your loan application. The different institution comes with their definition of a good credit score to get a home loan. In addition, they have other qualification procedures besides a credit score. This can include your down payment, marital status, and even your employment history can determine the final decision.
What is the Good Credit Score Required to Buy a Car?
When your credit score is in the subprime category, there’s a higher probability that you will not get the financing. Else, the rates will be considerably higher. You need higher credit scores to get the best rates when finding a new car. That is a score of above 680.
What is a Suitable Credit Score Required for a Credit Card?
A credit card is among the credit types everyone will qualify for. Moreover, to get a credit card with a great interest rate, more perks, and no annual fees, you will require a score of above 720. Besides, one can also get a sound credit card with reasonable rates if you have a credit score of over 640.
What is a Suitable Credit Score for a Student in College?
The credit score scale is similar for every person. Thus, even students will have a score ranging between 690 and 712. However, this isn’t a simple task for the students since they have a little history, and several have student loans.
Americans have an education debt of above $1.6 trillion, according to the latest student loan stats. This lowers their credit score rating significantly. For the students to get good financial health, they need to start improving on their credit history early. In addition, they should use students’ credit cards and avoid accumulating debt in their adult lives.
What is a Suitable Credit Score Needed to Loan a Vehicle?
There is no exact credit rating required for car loan approval. Various lenders have distinct qualification criteria, and your location also determines.
According to Experian, 30% of vehicle loans will be approved in 2020. These were borrowers having a FICO grade of below 600. Nevertheless, the average interest rates vary from 4.29% and 20.49%.
What is a Suitable Business Credit Score?
The best business score regarding the Equifax and Experian charts is 90+ and 76+, respectively. Bradstreet and Dun consider anything above 80 points good. FICO SBSS’s for a good rating needs to be over 160. Unlike personal credit scores, the chart ranges between 300-850; the business scores mainly vary from 0 to 100. The only omission here is FICO SBSS, which has a rating of 300. The better rating shows a very low likelihood of defaults or late payments. Businesses with a good score qualify for different loans and are regarded as more trustworthy.
Why Are There Different Credit Scores?
A credit score is a tool that creditors use to make lending decisions. VantageScore and FICO create different credit scoring models for the lenders. Both of these brands release new credit score models periodically. The latest versions can include changes in consumer behavior or technological advances. Thus, you should read the recent regulatory terms.
For instance, VantageScore makes a tri-bureau scoring model. A similar model helps evaluate your credit report from either of the three main consumer credit bureaus. They launched their first version in 2006, and the newest release was in 2017. It was the first credit score to include trended data. FICO started earlier and was among the first to make credit scoring models dependent on consumer credit reports. It makes different versions of its scoring models compatible with varying bureaus of credit data.
The two main consumer FICO Scores include base and industry-specific FICO Scores. Base FICO scores are for any kind of lender to utilize since they aim to predict the probability that a borrower will fall behind any credit obligation. The base FICO scores vary from 300 to 850. With Industry-specific FICO scores, it forms auto scores and bankcard scores mainly for auto card issuers and lenders. Moreover, industry scores help predict the probability that a consumer will fall on a particular account type. Its score varies from 250 to 900.
Importance of Having a Good Credit Score
Credit scores are more associated with loan applications or credit cards. Moreover, the best score qualifies one for more financial products with reasonable terms, rates, and credit limits. However, their advantages go beyond that, even when not borrowing money. Those with good scores enjoy lower insurance rates and lower security deposits, utility accounts, telecom, etc. A good score makes it easier to lease a house.
Credit Limits and Interest Rates
When approved for a credit card or a loan, a better credit score leads to lower interest rates or higher credit limits, or sometimes both. When paying reduced interest, one will have fewer payments. Thus, they will spend their debt faster. Generally, the higher the credit score, the lower the borrowing cost.
Pre-Qualification, Pre-Approval, and Comparing Offers
Those with a good credit score are pre-qualified for several loan offers, and they get pre-approval. Thus, this will allow you to make some comparisons on different offers and get the best fit depending on if you are looking for mortgages, auto loans, personal loans, credit cards, etc.
Apart From Loans and Credit Cards
A good credit score also affects your other side of life. The landlords can check your credit score as a requirement for your rental applications. Other employers check your credit reports before they hire you. Nevertheless, insurers consider a good credit to decide on premiums. Utility and cell phone providers can renounce security deposits for those with good credit scores.
How Can One Find Out Their Credit Score?
Several credit card organizations offer free credit scores. Moreover, others also give credit scores for free to non-customers. One can also purchase a FICO score at FICO’s official site. Furthermore, the VantageScore credit scores are available at VantageScore’s official site. Other banks and credit cards offer credit monitoring. Verifying the credit score before paying for it is good since it may not be your VantageScore or FICO.
The best way to get a credit score is through a loan or credit card application. In the letter, you’ll get your credit score and the way it is factored into the approval or rejection of your credit application.
How Frequently Does a Credit Score Change?
One’s credit score continuously changes depending on the actions one takes. It’s normal to change monthly and sometimes daily as creditors report your new details.
The lenders will report details about your current financial obligations and your payment history to credit bureaus. Then, the credit scorers will use the information on your credit report and other information concerning you to compute a free credit score.
A credit score is like grading your financial responsibility. The new lenders will use these credit scores to decide your probability of paying your loan in the future. Moreover, there are things one can do to boost their credit scores in the future if not where you need them. To have an idea of the place you stand, you need to understand your exact credit score.
What Can One Do If They Don’t Have a FICO?
Credit scoring models utilize your credit reports in determining your score; moreover, they can’t process your reports without sufficient details. To get FICO scores, you need to have an account of at least six months old. In addition, VantageScore can score your credit report when it has an active account, even if it’s one month old. Otherwise, you need to open an account or add a new activity to build a credit report. One can start with a secured credit card, credit-builder loan, or being an authorized user.
Why Credit Score Differs With Time
Credit score changes for numerous reasons. Although, it’s normal for the scores to increase or decrease throughout the month. The main reason is new details get added to one’s credit reports. You can point to a specific event that leads to scoring chances. For instance, a new collection account or late payment will likely reduce your credit score. On the contrary, paying a high credit card loan on time and decreasing your utilization rate help increase your score.
However, some actions can adversely affect your credit scores. For instance, paying off a loan and your score drops, even though this is a good action in terms of good money management. This main reason could be because it’s the only loan with a low balance or the only installment account you had on your credit report. After loan payment, you will not have a mix of revolving accounts and available installments or just high-balance loans.
Moreover, taking a break from using your credit cards after you pay off all the balances will help avoid debt, but your account will be inactive, which can easily lead to a low score. To keep it active, you can use this card for a small monthly loan and then pay it off monthly. This will also help in building its on-time payment report.
New late payment leads to a more points drop for a person who has always been paying on time. For instance, it may show some changes in behavior and credit risk. Moreover, a person that has had several late payments will have a few point drops from a new late loan payment. The reason is it’s already judged that they have a higher probability of missing payments.
Conclusion: What Is A Good Credit Score?
Various lenders come with different standards; hence the experience with them varies. A higher credit score with a negative public record on your credit file will decrease the chances of getting a loan. Moreover, your income doesn’t affect your credit scores, but lenders will. A lender is free to approve or not approve your loan request even if your credit score is good if they feel you are risky in loan repayment. If struggling to overcome credit card debt, always reach out to qualified credit coaches to assist you in paying off your debt quicker and raise your score.