Credit histories, credit reports and credit scores are key component of every individual’s financial health whether we like it or not. Unfortunately, too many consumers don’t know what the numbers of credit score mean for them. Have you ever obtained your credit report and credit score or been told about this number before and didn’t know what it means? The formula behind credit scores is a bit of a secret and credit reporting agencies can each assign you a different score. The good news is that credit scores have a range and if you understand what the ranges mean you can effectively evaluate your score.
Depending on who you read or which credit score you read, scores may go as high as 900 and as low as the 300s. A range of lenders use credit scores to facilitate lending decisions and every one of these lenders has their own guidelines for making loans and providing credit based on the borrower’s credit scores and other attributes used to make the credit decisions. There is no single credit score applied by all lenders that’s determined loan and credit approvals as well as the interest rates for the use of the credit.
With the recent tightening of credit, some report that what was rated as “good” may have changed a bit. What hasn’t changed is the higher your number the better. Here is what most sources that create the credit score models say about the ranges:
800-850 or more
This may be considered perfect credit. One caveat. If you have this number and no supporting credit history it is a meaningless score. People with a score in this range and a long history will get the best interest rates on everything. We all should strive for this.
720-799
Excellent credit. Most likely you get pretty much the same rates as those above this range. No worries here.
680-719
This is good but not perfect. Think of this as a being a “B” student. It makes sense to work a bit harder and get it into the ‘A” range. You will get approved for loans and credit cards but will you will pay slightly higher rates than those with excellent credit and you may be charged slightly higher premiums for auto insurance.
620-679
Good or okay credit. Scores in this range are fairly common so you should not despair. However, you may be getting charged more for credit and that is money you do not have to spend if you get your financial house in order. Even with good credit it always worth the effort to strive for perfect credit or a better credits score. The higher score, the more credit opportunities that will be available and the better the borrowing terms such as larger loan amounts.
580-619
No one likes to be “below average” and scores in this range are below average and may be teetering down a path to bad credit. People with these scores are considered “sub prime” and given the news of late, you know that is not good. In a tight credit market, if you have a score in this range you will have trouble securing financing and if you do the terms will not be good. Obtaining credit will not blocked but interest rates will be higher and credit conditions will be more restrictive. No question: get moving and improve your score.
500-579
Folks with a score in this range need to improve their credit and engage some form of credit repair. Most likely an account went to collection, became a charge-off, a mortgage went into foreclosure or bankruptcy was filed. Credit scores that fall this low will often have generally have a significant negative event such as a mortgage foreclosure or bankruptcy that involved numerous accounts or numerous accounts that have payment delinquencies. This is an indication of credit mistakes that can impact your financial life for years.
Below 500
There is no good news here. People with a score below 500 must make serious changes to pull themselves out of the financial situation they are in. In these situations, the credit score is usually impacted by both a significant negative event such as bankruptcy or foreclosure as well as having the vast majority of credit accounts paid past due.
The key to good credit begins with paying your bills on time and living within your means. It really is that simple.