You need to know and learn where the credit score falls under the credit scoring range to interpret your score and what it means about your borrowing power. For the most part, all credit scores have the same goal, which is to help lenders see how risky it might be to approve your loan.
High scores specify or suggest low risk for lenders and low chances of default. On the other hand, low credit scores mean higher risk. A very low score indicates a poor debt management background, might cause lenders to reject your loan application.
Sometimes, creditors use credit scores, as well as other data like proof of income and employment history, to determine how much they’re inclined to lend you and at what interest rate. For a little help, we will walk you through the different credit scoring ranges to help you interpret your score. Read on!
Credit scores are computed through scoring models (computer programs). These computer programs perform advanced statistical analysis on your credit report’s contents, your background of repaying debts and borrowing.
Credit scoring models search for patterns in your credit report that is closely associated with consumers’ payment defaults. Derived from the absence or existence of these patterns, credit scoring models give you a score, typically a three-digit number, indicating your expected riskiness comparative to other consumers.
Credit scoring models created by various companies, for example, VantageScore® and FICO® score*, vary in how they compute and interpret scores. When taking note of changes in credit scores over time, or differentiating one score to another, it is essential to understand the following, to ensure that you are making the correct comparisons:
- The scoring model’s version.
- Which model was utilized to compute your credit score?
- Which loan bureau provided or supplied the credit report from which your credit score was obtained.
- The lowest and highest credit scores you can obtain through that model.
So, whenever you get a score, either when you inspect your own credit score or from a lender expounding a lending decision, the law needs or demands the inclusion of this info.
Credit Score Ranges
Attempting to learn and decipher a credit score without understanding its score range is like putting on clothes to go outside when the temperature is thirty. Merely speaking, knowing which score range to apply makes a significant difference, for example, a credit score of 700.
On the FICO® scoring range of 300 to 850, a credit score of 700 means a good credit and would make you qualified for different loan offers. About ninety percent of all lending decisions use FICO® scores. Thus, a FICO® score is, for the most part, a precise or exact reflection of your reliability as a creditor may see it.
On the other hand, on the VantageScore® scoring range, a credit score of 700, which also spans 300 to 850, indicates a fair credit. Keep in mind that this scoring model is developed differently.
What Do Your Credit Scores suggest?
Since general credit scores refine or purify your loan payment behavior and credit usage history into one reference point, creditors usually utilize them as one credit quality barometer. Each creditor establishes its own standards. However, here’s a quick rundown of how creditors see different FICO® Scores groupings:
- 300 to 579: This scoring range is considered as poor. A lot of creditors reject loan applications from people with credit scores in this FICO® scoring range, which could be derived from a huge credit problem.
Moreover, credit card aspirants with such credit scores can only opt for secured cards that require a cash deposit.
- 580 to 669: This scoring range is categorized as fair. Creditors might decline applicants with these credit scores if they apply for huge loans. Individuals with credit scores in this scoring range might be regarded as subprime borrowers, qualified only for loans with higher interest rates.
- 670 to 739: This scoring range is considered as good. Creditors regard people with scores in this scoring range as acceptable borrowers. These people are eligible for an extensive array of credit cards and loans. However, they’ll be charged higher interest rates.
- 740 to 799: This scoring range is categorized as very good. People with scores in this scoring range are qualified for better interest rates from creditors.
- 800 to 850: This scoring range is considered as exceptional. Individuals with scores in this scoring range usually undergo uncomplicated approval processes when applying for a loan. Also, they’re typically offered the lowest fees and interest rates.
Knowing where your credit score falls under the scoring range for the credit scoring model that created it is critical to interpreting the score. Also, it is essential to whatever plans you might have for improving and tracking your credit score in the long run. Check the Credit Score Trends to have a better knowledge about credit scores.