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There is no question that good credit opens doors and a good credit score can be helpful in enduring the ups and downs of the country’s economy. A good credit history can help you secure cheaper mortgage and auto loan rates and even obtain reduced estimates and rates for a variety of types of insurance coverage and credit-based professional services.
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The Fair Isaac Corporation’s FICO score is the most popular credit evaluation method. The FICO scoring system goes from 300 to 850, with 300 being the minimum possible FICO score and 850 being the highest attainable rating.
The FICO scoring model operates as follows: A ranking that is 760 or higher is considered a great status. Individuals with ratings in this range have a history above the typical American. Creditors consider these consumers as top-notch applicants. A rating between 725 and 759 is a very good score, and lenders see people with this standing as dependable customers. A FICO score between 660 and 724 is a good score that is near the typical rating of American customers. A rating between 560 and 659 is not a good score, however, some loan companies will still okay lending options for customers with standings in this range. Virtually any score below 560 is an undesirable score and a good number of lenders consider these consumers to be risky customers.
What is an excellent credit rating can vary according to loan provider or the kind of financial loan or credit-based product you apply for. For instance, Fair Isaac Corp. accepts a credit score that falls somewhere between 660 to 724 to be a good rating, but U.S.-based financial company, American Express, usually requires at minimum a 750 credit rating score to be considered for many of their credit and charge cards. Evidently, banks believe the term “good credit” is relative. Many financial institutions usually set their own credit standards.
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The Credit Bureaus
Credit bureaus gather financial information on everyone and maintain it in a file for each person. The information pertinent to the credit report is how well people pay their bills and the types of purchases they have made, big and small. For example, if someone is renting an apartment, the apartment manager may report to one or all of the credit bureaus that the tenant paid the rent on time, made a few late payments or maybe even always paid late. The tenant in question might have stopped paying the rent altogether and the landlord had to evict this person. All of this information would go on the three credit reports and they will affect the consumer’s ability to purchase things in the future.
The Meaning of the Credit Score
The three credit bureaus, Experian, TransUnion and Equifax, will each calculate a score based on what has been reported to them by a consumer’s creditors. The score tells a story of how creditworthy people are; this means that it lets everyone know how likely a person will be to pay the bills. Low scores mean that the person is not very likely to pay their debts, while high scores mean that they have very good chances of paying their bills on time and in full.
How the Credit Score Report Impacts People’s Spending Power
These scores range from 300 to 900. Bad credit is considered to be between 300 and 580. Scores from 580 to around 650 are intermediate credit while scores 700 and above are very good. When someone wants to borrow money for an auto loan, for example, the lender will check the credit score report on the applicant. If the credit score report shows that this hopeful car purchaser has a score between 300 and 580, the lender may not approve this person for the loan. It’s possible that the applicant could go to another lender and be approved, but this other lender will also know this person’s credit score and will charge a higher interest rate because he can’t be sure this particular borrower will repay the loan.
The Importance of Knowing One’s Credit Score
Checking for errors is another important reason for people to read their credit reports, especially before they make a large purchase. When they start the process of buying something like a house, for example, the lender seeks their credit report scores, but the score will be lower if there are negative entries that aren’t current on the report. If they seek to remove any resolved negative entries, their scores will improve and they will have a better chance of receiving their loans.
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