Improve Your Credit - Understanding Your Credit Score
Are you thinking about applying for credit? Whether you’re buying a new car, getting another credit card, or refinancing your home, one of the first things your lender will do is check your credit score. This score will determine just how swift and easy it will be to get the loan. That’s why it’s always good to know what your current credit score is… before you approach a lender.
What exactly IS a credit score?
Your credit score is a number the credit bureaus use to rate just how credit-worthy you are. They look at both your past credit history and how well you’re handling any current debt you might have.
The three major credit bureaus are Experian, Equifax, and Trans Union. Each one has it’s own method of deciding what your credit score is. Then they use a scoring system to show how good you are at handling credit and paying your bills on time. They all use the same scoring system - FICO - which is an acronym for Fair Isaac Corporation. That’s why many people will use the terms “credit score” and “FICO score” interchangeably.
Don’t be surprised if your lender just gets a credit score from one credit agency, instead of all three. This is not uncommon. Since all three bureaus follow the same scoring system, they will likely be giving very similar scores. For example, if Experian gives you a score of 710, Equifax and Trans Union scores should be in the same range. Of course, sometimes one credit bureau might have bad info. Mistakes happen, which is why you should review your credit report annually with all 3 credit bureaus. If there’s a mistake, take the appropriate steps to repair it as soon as possible.
Credit Score Ranges - What Is Considered A “Good” Credit Score?
FICO scores range from 375 to 900 points. A higher score is typically considered a superior risk. So the higher your credit score is, the easier it will be for you to get credit and the superior the terms will be.
While each lender has his own criteria to follow, here’s a general guide that shows how credit scores tend to rank.
If your credit score is 650 and above, this usually indicates very good credit history. This means you’ll probably find getting credit approval is quick and easy. Another bonus for having very good credit is that the terms of your loan will likely be very good, too.
If your score is between 620 and 650, you are considered to have generally good credit. That said, your lender may ask for additional documentation or explanations before approving huge loans or extending a high credit limit. They are simply doing their due diligence, looking for any possible credit risks before final approval.
Chances are good that you’ll be able to get credit at a good rate and decent terms. It’s just that instead of swift and simple, it can take a little longer to get approval.
A score below 620 doesn’t automatically mean you won’t get credit. But you might need to shop around a bit to find the right lender. You should also understand that the interest rates and terms of your loans won’t be as desirable.