Your credit score is derived from information found on your credit reports. Therefore, naturally, a bad and inaccurate credit report won’t reflect too well on your credit scores.
If you want to improve your credit score, you have to start from the report.
First, you need to order a free credit report and review it thoroughly to detect any negative misinformation.
Although the companies that develop credit scores – such as FICO does not decide which credit scores are “good” or “bad”, most people have a gut feeling about their credit score. It’s either great, good, or bad. But what is a bad credit score really?
It is up to individual lenders and insurance companies who use applicants’ credit scores to decide if the applicant is a good fit. Therefore, there is no defined bad credit score per se, it is up to the lenders to decide what score is a bad score.
With that said, there are some assumptions that can be made about credit scores that fall within certain ranges. When you are reviewing your credit score, you can generally fit them into categories below:
Excellent Credit: 781 – 850
Good Credit: 661-780
Fair Credit: 601-660
Poor Credit: 501-600
Bad Credit: below 500
If you are at poor credit or below, consider your credit score needs fixing. Today we’ll examine how you can improve a low credit score by yourself.
Having a good credit score means more money for yourself.
Credit reports are like report cards for the adults and credit scores are like the GPA for the adults – at least financially. Not only creditors use credit scores to judge the trustworthiness of a loan applicant, even some employers take credit scores of a potential employee into consideration during the hiring process.
There are multiple credit scores calculation models out there, but we focus on FICO scores as over 90% of lenders use FICO as the benchmark. FICO credit scores range from 300-850 and are categorized as follow:
500 and below: You’ll be denied credit / will only be approved for the highest, most costly interest rates.
501-600: You’ll qualify for credit at high interest rates.
601-660: You’ll qualify for credit at moderate interest rates.
661-780: You’ll qualify for credit at competitive interest rates.
781 and above: You’ll get the most competitive, lowest interest rates on the market.
Someone with a score at the lowest rank can be charged interest rates 2-4% higher than the ones at the highest rank. Can’t visualize the difference in terms of dollars? Let’s break it down here:
Understand Credit Score – the FICO scoring model. Source: MyFICO.com.
Whether you are renting or buying a home, applying for a car loan or simply a new credit card – lenders want to know the risk when they lend money to you. To them, you are not a friend, not a family member – you are a stranger they have only met for the first time and they know nothing about you.
To determine the risk of you delaying payments or defaulting on a loan, they judge your credit risk by looking at your credit scores. FICO scores are the credit scores used by 90% of top lenders as a benchmark. Naturally, as consumers, we want to understand what goes into our credit scores and have some control over it.
Know the 3 basic, interesting facts about your credit scores.
A credit score is a three-digit number calculated from your credit reportand it is one of the major factors used by lenders to determine your creditworthiness for a mortgage, loan or credit card.
In short, it is a rank or “GPA” for your personal finance and borrowing history. Much like teachers rank students by their GPA, creditors rank loan applicants with their credit scores.
Your score is important as it is a major determinant of whether your loan will be approved, as well as what interest rate you are charged. If you have decent credit scores, you are more likely to obtain loans at better interest rate than someone who has a worse credit scores.
In this article, we explore the 3 basic facts you must know about credit scores and how it can affect your financial life tremendously.
I’m Edward, founder of this website. If you want to learn about affiliate marketing and building a stable side income from the internet, I think you can learn a thing or two here!