Credit Scores and What They Mean
So just what do those credit scores mean that are so crucial in whether we secure the loans we desire at the optimum interest rates?
When we speak of these numbers we are referring to the FICO scores that lending institutions use as a part of their criteria for loan approval…and denial.
The FICO score ranges from a low of 300 to a high of 850. Needless to say you have to have exceedingly bad credit to be at 300 and perfect financial history to hit the 850 score. With those extremes aside, nearly everyone falls somewhere in various ranges which are generally explained as follows.
Those with the highest scores are those above 800. As such you can expect the best loans at the lowest interest rates. Interestingly those who have no credit history at all automatically have a score of 800. However you will need some years to build credit and establish a credit history. Knowing you start out near the top should provide incentive to establish good financial habits of paying bills on time.
Generally regarded as the next tier is a score of something above 720. You should still prevail well with loans at this level. Should your FICO range around 680 to 720 you will also do well, but you are not in the upper tier and the interest rates offered you will reflect this.
Scores below 680 while not bad may result in some difficulty in attaining loans; if you are not outright declined you will find interest rates are higher than those above you in the credit spectrum.
A score below 620 is considered to be “bad credit” and the farther below the 620 the worse you will fare. With a 580 score you may have success in attaining a loan, but with higher interest rates and restrictions. Scores below 580 reflect serious blemishes on your credit history such as collections, judgments, foreclosure and bankruptcy. Scores below 500 would be considered very bad credit with likely a number of marks. While lending agencies cater to people with bad credit interest rates are high.
Click here for a full explanation of the components of the credit score. Here is a discussion on the meaning of FICO.
Fortunately, you can improve your score by rebuilding. Paying bills on time and keeping credit card balances low will help. Here are more suggestions for improving credit score. Find additional tips and pointers in the video below.
Credit Scores and What They Mean