What is a Cut-Off Score
A cut-off score is the lowest possible credit score one can have and still qualify for a loan. Cut-off scores vary widely depending on the type of loan requested and the lender. The cut score for credit cards and other high-interest loans will tend to be a lower value.
Credit scores, sometimes known as FICO scores, take their basis from information supplied by the data analytics firm of the same name.
BREAKING DOWN Cut-Off Score
Lenders will determine their acceptable cut-off scores. Also, the minimum cut score will vary by the type of loan. For example, some home loans require a minimum FICO score of 620, while others may accept scores less than 620. Applicants with scores below the minimum standard will usually have their applications denied.
Anyone applying for a loan and having an adverse credit score, or a score below the cut-off score, is usually rejected. Also, there is no guarantee a person with a score above the minimum level will get approval. Lenders may override the cut-off score limitation and approve a loan, but it is rare. Also, these loans may carry a higher interest rate or be for a limited amount of funds.
Cut-Off Scores and Credit Scores
A credit score is a statistical number which has a basis on the credit history of an individual. Lenders use the score to evaluate a borrower's creditworthiness. A person's credit score may range between 300 and 850. The higher the score, the more financially sound a person is considered to be. There are various credit-scoring systems, but FICO score is the most commonly used.
You can improve your credit score by maintaining a long history of paying your bills on time and keeping a low level of debt. Payment or credit history accounts for the most significant percentage of a credit score and is considered the best indicator of whether an individual will repay their debts. Other factors contributing to the credit score include the amount owed, the length of credit history, the mix of credit used, and new credit inquiries.
There are uses for the credit score outside of traditional loan or credit card applications. A person’s credit score may determine the size of an initial deposit required to obtain a cell phone, cable service or utility deposits, and the ability to rent an apartment. Also, some employers will request a potential employee's score. This type of employer request is common in occupations which involve handling money and is a requirement to obtain a U.S. security clearance.