Since your credit score range affects your ability to borrow and is also an important factor in your financial life, it is best to understand what these score ranges mean.
Credit score ranges spans from 300 to 820 points, thus there’s a lot of interpretation on what to aim for. To begin with, it helps you in knowing what the average score is. However, the figure differs a bit based on which method is used in calculating the score.
The two most popular credit scoring models are FICO 08 and VantageScore 3.0, list average scores from 2018 as 704 and 680, respectively. However, FICO 8 and VantageScore 3.0 share many scoring criteria even though they don’t weigh individual elements the same.
What is Considered a Good Credit Score?
Now that we have been able to break down what credit scores mean. Let’s now characterize and. Compare different credit score ranges. We will be focusing on the FICO score ratings because a vast. Majority of lending institutions use FICO scores, thus It is the standard by which you’ll likely be judged.
Excellent Credit: 800+
This credit score range enables borrowers to get good terms. And may afford them the opportunity of negotiating for even better terms. Lenders perceive borrowers in this. Category as better options to others.
Very Good Credit: 740 – 799
People in this category are still very attractive to lenders. In this category, your interest rates will probably be favorable as long as you are not stretching your income to make the purchase in question.
It is estimated that 2% of borrowers in this credit score range will become delinquent on their loans.
Good Credit: 670 – 739
Credit scores in this range are close to the national average, however, borrowers in this category can still anticipate getting credit in most cases. Be it as it may, you may not be thrilled about the amount of interest you have to pay. In this category, an estimated 8% of borrowers in this credit score range will become delinquent on their loans.
Fair Credit: 580 – 669
Consumers in this category may encounter trouble while trying to obtain credit. When they do, their interest rates may be significantly higher than that of most borrowers. For this category, an estimated 28% of borrowers in this credit score range will become delinquent on their loans.
Poor Credit: 579 and Lower
Borrowers in this category always get rejected by lenders. To get even modest loans, they will be required to pay fees upfront to offset lending risks. For this category, an estimated 61% of borrowers in this credit score range will become delinquent on their loans.
FICO makes use of predictive analytics to take consumer information and analyze it. The company uses the following five factors for its credit scoring model:
- Payment history
- Total debt
- Credit history
- Types of credit
- Credit inquiries.
From these factors, FICO gives each individual a credit score. To generate a FICO score, you must have a certain amount of available credit.
On the whole, FICO is considered a credible source of consumer information. This is because FICO scores tend to be a reliable way of determining if someone will be able to repay a loan on time.
VantageScore was developed as a joint venture by Experian, Equifax and TransUnion. It calculates consumer credit scores just like FICO but in a slightly different way.
Unlike FICO, VantageScore uses six different categories in its credit scoring model, they are:
- Payment history
- Credit utilization
- Total balance
- Depth of credit
- Recent credit
- Available credit.
How to Get a Higher Credit Score
To achieve a high credit score of 740 and above, do the following:
- Practice financial responsibility
- Make consistent, on-time payments
- Monitor your credit reports