The average person has a very basic idea about their Credit Score. It’s either “great”, “good” or “bad”. But what exactly does your Credit Score really mean? In actuality, there are several different “scoring models” that are used by the different credit agencies to determine what your “score” actually is. Some of these use a scale and some of them simply use numbers to convey this important information.
For example, your FICO score starts at 300 and tops out at 850 whereas the range for your VantageScore is between 501 and 900. VantageScore 3.0 has arranged between 300 and 850. With all of these scoring systems, the higher the number that you have the better your Credit Score is and, obviously, the lower your score is the harder time that you’re going to have getting that new car loan.
Further confusing people is the fact that these credit reporting agencies don’t actually decide who has a “good” credit score and who has a “bad” credit score and neither do the reporting agencies that give the information to these companies. No, the insurance companies and individual lenders who use these numbers to determine whether you are an acceptable level of risk actually are the ones that put a label on the type of credit score that you have.
These companies and lenders use your credit score in a variety of ways that will affect you financially. These include;
- Figuring out the interest rate that they’re going to charge you for your loan.
- Determining the discount that they might be able to offer you on your new insurance policy
- Deciding whether or not to give you credit
- Figuring out how much credit that they actually can give you
- Determining whether or not they should lower your credit limit
- Determining whether they should close your account (if they deem it too “risky”)
Since the actual number doesn’t really mean anything until a specific lender decides how to use it, there’s really no such thing as a “bad” credit score. The fact is, it’s only when your credit score keeps you from accomplishing whatever financial task you have on hand that it becomes bad. If you’re trying to refinance a loan, borrow money at a lower interest rate or get the lowest rate on your car insurance, having a “bad” credit score can certainly affect you financially.
Back in the real world however you can use the numbers on your credit score to make certain assumptions depending on where among those numbers you fall. Generally speaking, assume that;
- You have “excellent” credit when you’re between 760 and 850
- You have “good” credit when you fall between 680 and 760
- You have “fair” credit when your credit score is between 620 and 680
- You have “bad” credit when your credit score is below 620
Determining Exactly Where You Stand
One of the best ways to figure out exactly what your credit score is, is simply to get your free credit report from the “Big 3” credit reporting agencies. You can do this once a year at no cost to you whatsoever but you can also pay to get your score on any sort of schedule that you like. If you do this on a regular basis you’ll be able to quickly identify your payment history, your debt and any other factors that might affect your credit score. You’ll also be able to see if there are any errors or mistakes in your credit report and take care of them before they become big problems as well as determine if you have been the victim of identity theft.
When you’re doing us remember that every lender is different and they will decide for themselves how to use your credit scores when making decisions about whether or not to lend you money or give you an excellent entry. It’s also important to remember that what some lenders consider a “bad” credit score others may consider to be perfectly acceptable.
If you have any questions about your credit report, your credit score or financial issues in general, please send us an email, leave a comment or ask questions and will get back to as soon as possible with answers, advice and suggestions.