Your credit score is a three-digit number that speaks volumes to the likelihood of your paying back the loan on time. Fico score normally falls between 300 and 850. Ideally, the higher the score is, the better it is in this case as well. A higher credit score means you are less likely to be a credit risk for the lenders – therefore if you apply for a mortgage, auto loan, credit card or other form of credit, you are likely to be approved easily.
Now you may be wondering, what credit score exactly is classified as a bad credit score? While there’s no fixed line as to what constitutes the bad credit scores, a standard can be set at 580 or below. Here's a breakdown of different credit score ranges and what they mean:Here's a breakdown of different credit score ranges and what they mean:
300 to 579 – are considered to have Bad Credit. If your credit rating is in this range, that tells the lenders that you are likely to be a substandard credit risk who may fail to make his/her payments in time or even end up defaulting. With such a low credit score, you are likely to be rejected for most of the credit and loan products in the market. Only less than 1 percent of consumers have a credit score that is below 500.
580 to 669 – Fair Credit The credit score that falls in the fair category is not the best but not the worst either. Regarding this, about 16 percent of consumers can be classified in this category. If you have fair credit, you will probably be able to obtain credit cards and loans but be charged higher interest rates. Getting your score to 670 or above will help you secure better rates.
670 to 739 - Good Credit A slightly higher portion of consumers have credit scores that are considered good, which ranges from 670 to 739. If your score is within this range, the lenders consider you as reasonable risks and more likely to make payments on time. You should be able to get credit cards and loans where the interest rate is neither extremely high nor extremely low.
740 to 799 - Very Good Credit Some 23% of consumers have a very good credit score, which ranges from 740 to 799. In this range and above, you will be able to secure the lowest rates on credit products from lenders. It will also be easier and cheaper to access credit and loans.
800 to 850 – Superb Credit A paltry 4. 9 percent of consumers get to attain FICO credit scores beyond 800 – which is the highest credit score range. If your score is this high, lenders are very confident that you are capable of repaying the debts as agreed. You will be eligible for the top credit offers and a very low interest rate, which will substantially cut back your borrowing expenses in a span of decades.
The best known type of credit scoring is FICO credit score developed by Fair Isaac Corporation. FICO scores use data from your credit report, with a view of rating you from 300 to 850 points. Therefore, when individuals discuss a credit score, they are most likely speaking of the FICO score.
FICO scores are another kind of credit score that some of the lenders use in addition to or in replacement to VantageScores. In general, the way VantageScores rate creditworthess is very similar to FICO scores. Like FICO scores, the VantageScore credit scores vary from 300 to 850. Therefore, the categories of bad, fair, good, very good, and exceptional credit are all the same.
Why is It Important to Consider Credit Score in Borrowing?
Credit reports and scores are what your lenders use to evaluate the risk of extending credit to you. If you have a low score, they consider you as a high-risk customer that may likely to fail in meeting or defaulting his/her obligations in debts as presented in his/her credit history. This has a direct bearing on your chances of securing credit or loans and the rate of interest that shall be offered.
The consumers who have very low credit ratings may not be in a position to apply for a new credit card or be issued with basic credit cards that are secured by a cash deposit. No bank or any other financial institution will accept to lend money to people with scores below 620 or 640 for auto loans or mortgages at any given interest rate - people with poor credit are considered high-risk. Only 44 percent of applicants of auto loans with credit scores below 600 are likely to be granted.
On the other hand, borrowers with very high FICO credit scores of over 760 can finance more and larger mortgages that they can afford to pay for decades because that is cheaper in terms of interest costs. The lowest interest rates and highest credit limits are often available to people with at least 740 FICO. Any person with excellent 800+ credit can literally save tens or even hundred thousands of dollars on borrowing costs over a lifetime.
Having bad credit can negatively impact many areas of your financial life:Having bad credit can negatively impact many areas of your financial life:
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More interest rates on credit and loan facilities that are approved
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Credit limits and other loan amount that are approved are much lower.
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Lesser credit card and loan promotions
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Lack of affordable housing and difficulty in getting a house to rent
- Becoming charged higher prices for auto and homeowners insurance
Correction of mistakes and error to enhance one’s credit standing over time is prudent. This is important in ensuring that the credit rating reflects the ability to meet the required payment terms, to obtain loans in the future, and to rectify errors that may be detrimental to the credit score. Better and cheaper credit helps to achieve long term objectives such as acquiring a house, education or an enterprise in the future. Maintaining low credit utilization and paying all debts on time will assist in slowly recovering and rebuilding credit back up over years.
