Your credit score is based on a formula that looks at how you've paid your bills in the past, how long you've had credit, what kinds of credit you have, how much you owe, and how much new credit you have. Your credit score can affect how much interest you pay on loan and even if you get one. People's credit scores are often used to figure out how likely it is that they will pay back loans, mortgages, credit cards, rent, and utilities. Lenders may use your credit score to determine if you qualify for a loan, how much you may borrow, and what interest rate you will pay. Here are some basic facts about credit scores and what they mean for your ability to borrow in the future.
How Credit Scores Work
Your credit score is a number that tells a lender how risky it is to lend you money. Credit agencies often use FICO scores to figure out how risky a borrower is. The Fair Isaac Corporation made it. The VantageScore is another credit score created by the top three credit reporting agencies working together. Based on the information in your credit report, your credit score is a number that shows how likely you will pay back a loan. Both FICO and VantageScore have a range from 300 to 850, but they divide their scores into different groups in different ways.
800 to 850: Excellent Credit Score
People with credit scores between 740 and 850 are considered responsible when borrowing money and are likely to get the lowest interest rates. People with this score have been paying their bills on time for a long time, and their credit card is low on balance. Mortgages, credit cards, loans, and lines of credit may have lower interest rates for people with good credit scores because they are thought to be less likely not to pay back their debts.
740 to 799: Very Good Credit Score
If a person's credit score is between 740 and 799, they are usually good with money and credit. Most of their bills, such as utilities, loans, credit cards, and rent, are paid on time. Credit card balances are not very high compared to their credit limits.
670 to 739: Good Credit Score
As of October 2020, the average FICO score for U.S. consumers is 711. A borrower with a score between 670 and 739 is close to or just above the average. Even though they might still get reasonable interest rates, they probably won't get the best rates that people in the two higher categories do, and it might be harder for them to get some credit.
580 to 669: Fair Credit Score
"Fair" credit is given to people with credit scores between 580 and 669. They might have a few small problems with their credit report, but there are no big ones. Lenders will still lend them money, but not at excellent rates.
Poor credit: less than 580
The credit history of someone with a score between 300 and 579 is terrible. This could happen if you don't repay loans from more than one lender. Borrowers with scores in this range don't have a lot of chances of getting new credit. If your score is in that range, talk to a financial expert about what you can do to fix it. Also, one of the best credit repair companies may be able to get the bad marks off your credit score for you if you can pay a monthly fee.
No Credit
Everyone has to begin somewhere. If your credit score is very low, like under 350, it's likely that you haven't opened any accounts yet and don't have a credit history. Talk to a local lender to find out what you must do to get a loan. Set up a response plan for paying back your first loan or credit card as soon as you get it, so you can start building a good credit history.
Conclusion
Your credit score is based on several factors, and it can be used to determine if you can borrow money and on what terms, like the interest rate, you can borrow it. If you consistently pay your bills on time, it won't hurt your credit score. Considering how important it is to have a good credit score, it might be worth it to pay for one of the best credit monitoring services to keep your information safe.
