Credit Score Ranges And How It Affects You
A credit score is a three-digit number that your bank will use to summarize your life and decide whether or not you will get that loan you desperately need. Check this article out if you want to finally understand how lending actually works.
Your credit score is a result of a calculation done by an algorithm based on your history with credits. Banks will use this number to try and determine exactly how likely you are to repay your loan and how likely you will be late with your payments. But, did you know that there are multiple credit scores?
There are actually multiple companies that provide the service of determining your credit score. The most popular one is Fair Isaac Corporation which is actually the company that created the concept of a credit score in 1960. Their system of scoring is the most widely used score out there, you have probably heard of it as it is called your FICO score. The second most used system is VantageScore which is a brainchild of 3 credit unions.
Now, that we have gotten the basics out of the way, let’s get to credit score ranges and what do they mean for you.
Excellent Credit Score
If your credit score is in the range of 750 to 850 that means that you have been consistently responsible with the money you have borrowed and that the bank can expect you to continue with the positive behavior. This leads to you being a perfect candidate for a loan which leads to the bank offering the lowest possible interest rate. This can go a long way through low rates on mortgages, credit lines, and loans.
Good Credit Score
If you are a borrower whose credit score falls between 700 and 750 you are still considered being a good candidate for any a bank that wants to deal with you. This is still a rather high score and it is obtained by keeping up with loans, not missing payments and rarely being slightly late with your payments. Those with good credit score keep their negative credit balance in check, rarely utilizing more than 20% of it. If your credit score is considered as being good you should have no troubles getting a loan, but, unlike those who have scored over 750, you will not get specially lowered rates.
Problem Credit Score
If your credit score is lower than 700 but higher than 650 you fall in the problematic credit zone and have a damaged history with credits. This means that you have had issues with your money in the past, that you have more than one lender and that you have a tendency of not keeping up with your payments, being late or not making them in full. There is a substantial risk of your history showing a loan default. If your credit score is below 700 there is a relatively high probability that you will be declined for any future credits simply because you are now considered as being a risky investment.
Poor Credit Score
When your score is over 350 but under 650 it is considered as being a poor credit score. Landing in this credit score range means that your credit history is significantly damaged and that your chance of getting a new credit is nearing 0%. This damage to your credit history can be made by having multiple defaults on various credits from multiple lenders.
However, even without defaults, you can fall into this credit score range if you have ever filed for bankruptcy. This is important to know since filing for bankruptcy will land you in a poor credit score and keep you there for up to 10 years unless something extraordinary happens with your finances. If you find out that you are in this range, you should probably consult a financial advisor about what you can do to try and fix it.
There are two ways for your credit score to be lower than 350. Either you have never taken out a loan so you do not have a credit history, which is not a big deal, or you have a critically bad credit history which will take drastic steps to repair.
If it is the former, you can feel free to contact any lender near you and discuss the loan you might need. Once you are approved you can simply be responsible and show regular payments to establish an excellent credit score.
If you tend to rely on loans to make bigger purchases you must try and pay any bills that you may have on time and in full so that you can keep lower interest rates. There are thousands of stories about people who got in way over their heads with loans that had horrible interest rates simply because their credit scores were bad and you do not want that to happen.
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