Calculated with a formula based on variables including payment history, credit length and amount owed, your credit score may affect the interest rate you pay to a lender and even make the difference between a loan being approved or declined. Read on to learn a few credit score basics, and what scores within a variety of ranges may mean for your borrowing future.
Credit Score Basics
Your credit score is a number that represents the risk a lender takes when you borrow money. A FICO score is a well-known credit score created by the Fair Isaac Corporation, and used by credit agencies to indicate a borrower's risk. Another credit score is the VantageScore, which was developed via a partnership between three credit unions, Equifax, Transunion, and Experian.
Your credit score calculation represents your credit risk at a moment in time, based on information found on your credit report. FICO scores range from 300 to 850, while Vantage scores range from 501 to 990. In both cases, the higher the credit score, the lower the risk to the lender. FICO scores are used for the purpose of this article.
Excellent Credit Score - 720 to 850
Borrowers with a credit score in the range of 720 to 850 are considered consistently responsible when it comes to managing their borrowing, and are prime candidates to get the lowest borrowing rates. They have a long history of no late payments, as well as low balances on credit products. Consumers with excellent credit scores may receive lower interest rates on mortgages, loans, and credit lines because they are deemed to be at low risk for defaulting on their credit agreements.
Good Credit Score - 690 to 720
A credit score between 690 to 720 indicates a consumer is generally financially responsible when it comes to money and credit management. Most of their payments, including loans, credit cards, utilities and rental payments are made on time. Credit card balances are relatively low compared to their credit account limits.
Problem Credit Score - 650 to 690
Borrowers with credit scores ranging from 650 to 690 have a damaged credit history. They commonly have a credit record showing multiple late payments to more than one lender, and may even show a loan default. Borrowers with problem credit scores are likely to be declined for future credit because they pose a high risk of not making payments on time and in full.
Poor Credit Score - 350 to 650
An individual with a score between 350 to 650 has a significantly damaged credit history. This may be the result of multiple defaults on different credit products from several different lenders. However, a poor score may also be the result of a bankruptcy, which will remain on your credit record for up to 10 years. Borrowers with credit scores that fall in this range have very little chance of getting new credit. If your score falls in this range, talk to a financial professional about steps to take to repair your credit.
No Credit - 0 to 349
Everyone has to start somewhere! If your credit score is between 0 to 349, chances are you haven't yet established a credit score and don't have a credit history. Talk to your local lender about their borrowing requirements. When you're approved for your first loan or credit card, set up a responsible repayment pattern immediately to establish a good credit record. If you do have a credit history, and your score has fallen to this range, drastic steps will likely be necessary.
The Bottom Line
Paying your bills on time and in full consistently will help you prevent damaging your credit score. Your credit score is based on a variety of factors and can be used to determine whether you will qualify to borrow money as well as the terms (including interest rate) of the credit. Scores between 720 and 850 are excellent, and indicate borrowers have long histories of using credit responsibly. Scores between 690 to 720 are good and show the borrower has made most of his payments on time and in full. A score between 650 to 690 may indicate a damaged credit history, possibly due to a loan default. Scores that fall in the 350 to 650 range suggest a significantly damaged credit history, often from more than one defaulted loan or even a bankruptcy.Scores under 349 are a sign that the applicant doesn't yet have a credit history.