What exactly is a credit score, and how do you determine whether it’s good or poor? If you’ve ever applied for a significant loan, like for a home or a car, chances are the financing company discussed your credit score with you.
Credit Score Ranges Explained
Your credit score is one of the pivotal factors lenders assess to decide whether to approve your loan application.
Credit card companies and lenders rely on credit scores to gauge loan amounts and interest rates. Your credit score, derived from your credit report, can significantly impact the amount you ultimately pay. In states where auto or home insurance companies factor in your credit standing, positively impacting your credit can lead to lower insurance rates. It’s worth noting that certain states like CA, HI, MD, MA, MI, OR, UT have specific restrictions regarding this.
What Constitutes a Good Score Range?
Credit Score Ranges
Credit scores typically range from 300 to 850. The popular FICO® Score model uses a 300 to 850 scale.
What’s the Average Credit Score?
National Score Averages
In the United States, the average FICO® Score hovers around 717.
Generally, a score of 680 or higher is considered good, while anything above 740 is deemed excellent. But what’s the average score?
The threshold between good and poor credit varies among experts, credit bureaus, and loan officers. What one agency may deem as a poor score, another might consider acceptable.
Moreover, the term “good” is relative. Does “good” denote excellence or merely adequacy? You can start by comparing your score to national averages. According to Fair Issac Corporation (FICO®), which introduced the concept in 1989, the following percentages of consumers fall within certain score ranges:
Based on this data, over 50% of the population boasts a credit score exceeding 700, while 42% fall below that mark.
FICO® isn’t the sole scoring model used in the credit industry. Various types of credit scores exist.
What Constitutes a Poor Credit Score Range?
Impact of Low Scores
A poor credit score falls within the range of 300 to 549: It’s widely acknowledged that scores below 550 usually lead to credit rejections. If your scores dip into this range, positively impacting them requires significant effort.
Filing for bankruptcy can plummet a score to this level. Statistically, borrowers with scores in this range default almost 75% of the time. Consistently making timely payments should gradually improve your score. While certain types of loans, like home loans, are challenging to secure with a score in this range, avenues for obtaining a mortgage with poor credit still exist.
What Defines a Poor Credit Score Range?
Challenges of Poor Scores
A poor credit score spans from 550 to 619. Credit agencies categorize consumers with credit delinquencies, account rejections, and scant credit history as subprime borrowers due to their elevated credit risk. While it’s possible to qualify for credit, it often comes with highly unfavorable terms, including significantly higher interest rates and penalty fees.
For individuals finding their credit scores within this range, addressing specific credit issues becomes crucial to positively impact the score before seeking credit. Subprime borrowers typically default around 50% of the time.
What Constitutes a Fair Credit Score range?
Benefits of Fair Scores
A fair credit score ranges from 620 to 679. Individuals with scores exceeding 620 are deemed less risky and are more likely to obtain credit approval.
Within the mid-600s range, consumers transition into prime borrowers. This means they may qualify for larger loan amounts, higher credit limits, lower down payments, and better negotiating power regarding loan and credit card terms. Only 15-30% of borrowers within this range default.
What Constitutes a Good Credit Score Range?
Advantages of Good Scores
A good credit score falls between 680 and 739. Credit scores around 700 represent the threshold for “good” credit. Lenders feel comfortable with this FICO® Score range, simplifying the decision to extend credit. Borrowers in this range are nearly always approved for loans and are offered lower interest rates. A credit score of 680 on an upward trajectory indicates positive financial management.
According to FICO®, the median credit score in the United States rests within this range, at 723. Borrowers with this “good” score default only 5% of the time.
What Constitutes an Excellent Credit Score Range?
Perks of Excellent Scores
An excellent credit score ranges from 740 to 850. Anything in the mid-700s or higher signifies excellent credit and translates to easy credit approvals and the most favorable interest rates. Consumers with excellent credit scores default at a rate of around 2%.
Within this upper echelon of credit scoring, marginal increases in points don’t substantially alter loan terms. Most lenders consider a credit score of 760 equivalent to 800. Nevertheless, having a higher score can act as a buffer against negative occurrences in your credit report. For instance, maxing out a credit card, resulting in a 30-50 point reduction, won’t drop you into a lower tier if you already possess a high score.
What Influences a Credit Score?
Factors That Impact Your Score
While each credit scoring model differs, several common factors influence your score:
1. Payment history
2. Credit utilization
3. Balances on active credit
4. Credit inquiries
5. Available credit
6. Number of accounts
Each factor carries its own weight in determining a credit score. To maintain a high credit score, it’s essential to stay current with bill payments, manage credit utilization, and limit inquiries.
However, if you’re in the market for a mortgage or loan, there’s a 45-day grace period annually during which all credit inquiries count as a single cumulative inquiry. In essence, if you visit two or three lenders within a 45-day period to secure the best loan terms, it registers as a single inquiry. This means multiple inquiries won’t negatively impact your credit score.
Why Are My Credit Scores Low?
Understanding Score Decreases
Low credit scores don’t solely result from late payments, bankruptcy, or other negative marks on a credit file. Having minimal or no credit history can also lead to a low score.
This situation may arise even if you previously established credit – if your credit report reflects no activity for an extended period, items might drop off your report. Credit scores require some form of activity noted by a creditor within the past six months. If a creditor ceases to update an old, unused account, it vanishes from your credit report, leaving the scoring model with insufficient data to calculate a score.
Similarly, consumers new to credit should be aware that lacking an established credit history means the scoring model cannot assess their creditworthiness, resulting in a low score. These individuals are still deemed risky borrowers due to insufficient information.
How to Enhance Your Credit Score
Strategies to Positively Impact Your Score
Another common query regarding credit scores is “How can I raise my score?” Several methods can positively impact your credit score. Some strategies include:
1. Rectifying inaccuracies on your credit report
2. Paying down balances
3. Making bi-monthly payments
4. Increasing credit limits
5. Opening new accounts
6. Negotiating outstanding balances
7. Ensuring timely payments
Credit & Debt offers consumers assistance in managing multiple payments. With a debt management plan, you can consolidate these payments into one at a lower interest rate. To learn more, contact one of our credit coaches today!
Navigating Credit Score Challenges
Different lenders maintain varying standards, so your experience may vary. You might possess a high credit score, but a negative public record on your credit file could diminish your chances of loan approval. While credit scores don’t consider your income, lenders do. Regardless of your credit score, a lender won’t greenlight your application if they perceive risks, such as doubts about your ability to repay.
The Bottom Line
Irrespective of where you stand on the scale, remember that numerous factors can affect your score. If you’re grappling with credit card debt, don’t hesitate to reach out to one of our knowledgeable credit coaches for assistance in accelerating your debt repayment and improving your financial standing.
