A good credit score generally ranges from 680 to 750 on a 300-850 scale by FICO and VantageScore, which are the most common scoring systems. Typically, consumers who fall within the good rating score spectrum qualify for attractive interest rates, loans, and credit cards. However, factors that make a good credit score is far more nuanced. Basically, the score range depends on the purpose of the credit score being used. Lenders may set different standards concerning what a “good” credit score is.
FICO is named after the company that develops the credit score software Fair, Isaac, and Company. Notably, FICO is the most widely used credit score. It describes a good credit score as one between 670 and 739 on its scale, which ranges between 300-850 points. Most of the financial institutions in the United States and abroad use FICO score to measure credit risk. One of the major credit bureaus in the United States Experian says two-thirds of Americans have at least a good FICO score.
Organizations and entities that lend money use FICO scores. For instance, when you apply for a mortgage, car loan, or credit card, the financial institution from which you are seeking credit must consult at least one of the three major credit bureaus: Experian, Equifax, and TransUnion. The results from these three corporations significantly influence the amount of credit and lending terms, which include interest rates.
According to Experian, a good credit for VantageScore starts at around 700. Experian says at least 43% of Americans have a good or better VantageScore. The three major credit bureaus Equifax, TransUnion, and Experian developed this criterion. Just as FICO, the models developed by VantageScore operate on data that is stored in the consumer credit files. The national credit bureaus maintain these files. VantageScore uses statistical analysis to predict the probability that a consumer is likely to default on a loan.
Unlike FICO, VantageScore does not use percentages to highlight how much weight it gives various credit factors. Instead, it describes them based on the influence they have. For instance, payment history is exceptionally influential, whereas the type of credit and age are highly influential. Debt and total balance are moderately influential, while recent credit behavior is less influential.
Since FICO score is the most popular credit score, most people mention "credit score" when referring to it. However, some lenders combine FICO and VantageScore with their own credit scores. Others also include some pertinent information about loan applicants. Therefore, financial institutions consider various factors other than these two main credit scores to determine your credit and interest rates.
Credit scores are primary decision-making tools that lenders check to predict the probability that you will repay your loan timely. At times, credit scores are referred to as risk scores as they help lenders assess the risk that you are unlikely to repay your debt as agreed. Having a good credit score also makes you qualify for renting the apartment of your choice and get cell phone services you need.
Factors that influence your credit score vary based on the scoring model that your financial institution uses. That said, the type, age, and number of credit accounts you have and your total debt affect your credit scores. The payment history for credit cards and loans, including the severity and number of late payments, also affect your credit scores. Public records such as bankruptcy can heavily affect your credit score.
Knowing the types of information that credit scores do not consider makes you worry less about your scores. For instance, they do not consider your religion, color, race, sex, marital status, and nationality as directed by the law. Besides, the scoring systems do not use your salary, title, occupation, or employment history in calculating your credit scores. The score does not also count consumer disclosure inquiry, promotional inquiry, and inquiries for employment purposes.
Are your credit scores bad? Your credit report is the source of the information for your credit scores. Therefore, your credit activity offers real-time data about how responsible you are with credit. National credit bureaus give information that help you view your credit from new perspectives, which help you take charge of your financial future. For instance, the credit bureaus help you learn more about how some choices improve or reduce your credit scores, how secured credit cards help improve your credit history, and how credit repair service works. They also provide information about how you can protect your good credit after divorce, marriage, or death of your spouse, as well as why you should know your FICO score before making a big purchase.
Financial institutions do not demand a minimal credit score limit to apply for most credit cards and loans. However, if your credit score is low, you are unlikely to qualify for high amount loans or credit cards. You are also likely to receive unfavorable interest rates. Thus, you need to wait for your credit score to improve to qualify for a conventional credit card or loan with favorable interest rates. Some mortgage servicers provide guidelines for those with low credit scores. For instance, FHA mortgage loans require a score of at least 580 with a down payment of 3.5%. If you have a score of less than 580, but you meet other requirements, you have to make a down payment of 10%.