You’ll likely have trouble getting approved for credit, whether it be a new card or a loan. This could end up costing you thousands of dollars, if not more, the next time you take out a loan or carry a balance on your credit card. Your rates in this category definitely won’t be the best available. However, there’s room for improvement to make sure you get the best financing terms. You probably don’t have many major negative items listed on your credit report. The average American’s credit score is 714, which falls into the “good” category. So, it may not even matter if your score is any higher than that. In fact, some lenders consider 720 as the threshold for the lowest interest rates. You’ll still get some of the best rates when you apply for credit. See also: How to Get in the 800+ Credit Score Club Very good credit: 740 – 799 The highest credit score you can have is 850. In addition, you’ll receive access to the very best interest rates and terms. You’re most likely to get approved for a loan or credit card. So, how are FICO scores ranked? The categories might vary by lender, but FICO scores typically fall as follows: Excellent credit: 800 – 850 However, it can be built up again within a few months of good credit use. This often takes a few points off your credit score. Recent ApplicationsĮvery time you apply for new credit, a hard inquiry is made on your credit history. This is why having a mix of credit accounts – such as mortgage, loan, credit card or phone bill – can raise your score. Lenders prefer to see that a consumer can manage several types of debt. The kinds of credit you have will also factor in to your overall credit score. Those with thin credit history can benefit from credit building cards and services. This is why it’s not a good idea to close an account even if it is unused. The longer your credit history is, the better. For VantageScore your payment history counts for 40% of its scoring model. FICO considers payment history to account for 35% of your credit score. This illustrates to creditors how consistent you’ve been with making payments, bills and other financial obligations on time. Payment HistoryĪnother major factor in your credit score is your payment history. According to FICO your credit utilization counts for 30% of your credit score, while VantageScore 3.0 puts credit utilization at 20%. This is presented as a percentage, and the lower your credit utilization is, the better your credit will be. Credit UtilizationĬredit utilization is the amount of available credit that you actually use. Let’s look at the different elements that make up the calculation of your credit score. The VantageScore or FICO algorithms are then applied to those reports to calculate your credit score. This data is compiled into your credit report. The three major credit bureaus, Experian, Equifax and TransUnion all collect financial information about consumers. The FICO Score: calculated by the Fair Isaac Corporation (FICO)® and used in 90% of lending decisions.The VantageScore: competitor to FICO, created by the three main credit bureaus in 2006.How Are Credit Scores Calculated?įirst, there are two primary credit score systems in the US: For that reason, everyone from credit card issuers and insurance companies, to mortgage lenders and property managers use FICO scores. By using FICO scores, lenders can quickly assess a consumer’s creditworthiness without poring over their entire credit profile. Creditors will then be aware of the risk they’re taking in lending to you.įICO credit scores range from 300 to 850. This indicates to lenders that you are a reliable borrower.īy the same token, if you have a history of late or missed payments, your credit score will be on the lower end. If you have a long history of on-time payments and you’ve been responsible with your credit, your credit score will be higher. This includes payments on credit cards, loans, and other bills. Your credit score takes into account various factors in your financial history and behavior. Lenders use your credit score to quickly evaluate how trustworthy you are when it comes to paying back a loan or credit card.Īlthough there are different types of credit score ratings, FICO is the biggest and most widely used credit scoring system. Your credit score is a three-digit number that represents your overall credit health. However, if you’re still in the “bad” category, it will be difficult getting approved for a loan, credit card, or mortgage. It’s great to bump your score up by 100 points. That way, you can determine where yours should be to achieve your financial goals. When you’re attempting to improve your credit score, it’s important to know how lenders categorize credit scores.
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