A credit score is a number based on the statistical analysis of a consumer’s credit reports, usually between 300 and 850. A good credit score is considered to be between 700 to 749. Any score above 750 is excellent.
The average credit score is 678. The higher a credit score, the more likely a consumer will be approved for credit and the interest rates will be lower.
In 2008 banks and creditors tightened their underwriting standards and now, more than ever, is time to know where you stand and keep an eye on your credit score with by routinely monitoring your credit scores.
Why Credit Scores Are Important
Credit scores are used by lenders and credit card companies to predict if you will be timely in your payments and if you will pay your loan off. Most lenders now use your credit score as the number one determinant in granting credit.
It is imperative you know your credit scores before applying for any credit. Since everyone else seems to know your credit score, you must be familiar with it also. Don’t be the last to know.
Credit scores are often used to determine your “credit worthiness” by the following: (1) Credit Card Issuers; (2) Telephone Companies; (3) Insurance Companies; (4) Cell Phone Providers; (5) Cable Companies; (6) Landlords; (7) Utility Companies; (8) Employers; and (9) Some Banks when you open a checking account.
The three major credit bureaus do not always use the same scoring models. This is why a consumer will have a different credit score for each bureau. Check your credit score online for fastest results.
Many financial advisors believe you only have to check your credit reports and scores twice a year. This is not enough. Credit scores can change daily as new data and bill payment habits are reported by your creditors. The amount of debt you carry and any new credit you apply for is monitored 24 hours a day.
Credit Score Breakdown for Consumers
Stellar Credit: Credit Score above 800
Practically automatic approval along with the lowest rates on whatever you apply for including mortgage loans, automobile loans, credit cards and even lower insurance rates. Your credit history is pristine with no record of late payments, collection accounts, judgment, bankruptcies or liens. You are considered an A+ borrower and the banks and lenders compete for your business.
Excellent Credit: Credit Score between 750 – 799
You have an excellent chance of being approved for credit with great interest rates just like the 800 and above credit score. The only exception from an A+ borrower is that you may have a higher debt-to-income ratio which keeps your scores below 800. But in the eyes of banks and lenders you are a prize possession just like the A+ consumer.
Good Credit: Credit Score between 700 – 749
Even though this is a very good credit score and you should be able to qualify for most loans, there will be some lenders that may turn you down or offer you credit at higher interest rates. There may be a few late payments in the past which are affecting your credit score. There may even be a collection account reported which can affect your credit score. But for the most part banks and lenders will have no issues in granting you credit.
Fair Credit: Credit Score between 650 – 699
Most lenders will approve you for automobile, personal loans and credit cards but it may be challenging to get a mortgage loan unless you have a good down-payment and job stability. With a middle of the road score range such as this, it would be a good idea to get your credit scores, analyze them and determine what you can do to make them higher. You may need to tackle late payments, charge-offs and collection accounts on your credit history by engaging in the dispute process. If you are able to get any negative items removed your credit score will improve. Reducing credit card debt and maintaining an on-time payment record for at least 6 consecutive months will also improve your credit scores.
Poor Credit: Credit Score between 600 – 649
Lenders will deal with you with extreme caution. Any credit you are able to obtain will definitely come with higher interest rates; and, if you are purchasing an automobile, you will be asked to make a down payment. There may be multiple credit issues in the past involving late payments, charge-offs and collection accounts. There may even be a bankruptcy in your credit history. Repairing your credit should be the focus in addition to adding positive credit to show you can manage credit.
Bad Credit: Credit Score between 550 – 599
Banks, lenders and even some credit card companies will be reluctant to grant you credit. Your options will be limited. If you need credit your choices will be strictly limited to subprime credit products for credit cards and auto loans. All is not lost on subprime products, many of them are designed specifically to help rebuild credit by reporting monthly payments to the 3 major credit bureaus such as the Credit One Bank® Credit Card. Credit repair, debt management and rebuilding credit will be your main focus.
Damaged Credit: Credit Score between 500 – 549
This score range indicates several derogatory items on your credit report. It is imperative immediate action take place in order to repair your credit. Whatever you have done in the past with credit you need to do the exact opposite. Unemployed consumers with credit scores in this range may even find it difficult to obtain a job as many employers pull credit reports in making hiring decisions. In addition to fixing your credit you must rebuild credit in order to show you can manage credit and debt. A secured credit card may be your only option for rebuilding your credit.
Serious Credit: Credit Score between 300 – 499
Credit scores in this range indicate serious financial problems and action needs to be taken now. Credit scores in this range may benefit from a professional law firm repairing their credit such as Lexington Law Credit Repair, they have experience in removing everything from charge-offs and bankruptcies to late payments and collection accounts from credit reports; and, they have affordable monthly payment plans. all for a free credit repair consultation today (877) 587-4574.
But even consumers with serious credit issues are not confined to bad credit for life. Late payments, charge-offs and collection accounts can only remain on your credit report for 7.5 years while bankruptcies and public records can only remain 10 years. Credit repair may alleviate these time periods.
What Determines Your Credit Score
While credit scoring companies such as Fair Isaac Corporation (FICO) will not reveal exactly how credit scores are computed, there are a five major factors which measure into the computation process. No one piece of information by itself determines your score.
Payment History (35% of your score)
- Information from lenders, banks, credit card issuers, department store accounts, car loans, finance companies, mortgages, etc., about how timely you make payments.
- Accounts in collection or past due.
- Information in public records, such as bankruptcy, judgments, liens, wage garnishments, or child support orders.
- Basically how timely you pay your bills, especially recent information is heavily weighted.
Amount of Debt Owed (30% of your score)
- How much you owe on all your accounts.
- How much credit you have available to use.
- As a rule you should only use 30% of your available credit.
- If you need to raise your scores quickly try paying down your balances to 30% of your available credit limit. The good thing about paying down your credit account to increase your scores is that it works whether the account balance is $5000 or $500.
Length of Credit History (15% of your score)
- How long ago you opened and used your accounts.
- How recently you applied for new credit.
- Recent good credit history following past payment problems.
- Never close old accounts. Closing old accounts deducts from your “length of credit history” and lenders always look at how long you have utilized credit. The older the credit account, the better the score.
Types of Credit (10% of your score)
- The different types credit accounts you have.
- The total number of accounts you have.
- Your mix of credit should include a mortgage, unsecured credit and revolving credit.
New Credit (10% of your score)
- Limit the number of credit applications you filled out.
- Applying for lots of credit will bring your score down. Lenders may interpret your applying for lots of credit as a sign that you are experiencing financial difficulties.
All of these factors determine your credit score. Points are awarded or deducted for each factor. A score of 700 or above is considered a good credit score. The best interest rates are afforded to consumers with credit scores of 750 and above.