When potential lenders review your application for credit, one of the most important factors is typically your credit score. The three-digit number known as your credit score is determined based on a combination of factors in your credit report, but you don’t have just one credit score. The fact that you have several different scores is why credit score ranges matter more than your score.
Scoring Models
TransUnion, Experian, and Equifax are the three main credit bureaus. Each of the credit bureaus has slightly different data. On top of that, there are different scoring models which use different calculations. The two most well-known scoring models are FICO and Vantage. Scoring models can also be tweaked for a specific product, such as insurance or car loans.
Credit Score Ranges
With multiple scoring models and data gathered from different credit bureaus, you may have many different scores. Even though the scores are different, they most likely fall into a range that lets lenders know how risky it would be to loan you money.
Both FICO and Vantage calculate credit scores that range from 300 to 850. While different lenders may interpret credit score ranges differently, approximate ranges include:
- Excellent – A score that’s considered excellent usually falls between 740 and 850. This range may be broken down further into exceptional (800-850) and very good (740-799).
- Good – Scores between 670 and 739 are often considered good.
- Fair – Fair credit scores range from 580 to 669.
- Poor – Scores below 580 are considered poor.
Lenders frequently determine the interest rate you’ll pay on borrowed money based on which category you fall in. If your credit score is poor, you may pay thousands of dollars more in interest charges than someone who has a better score. If you have no credit history at all, you’ll probably be considered a risky borrower.
Improving Your Credit Score
Scores may vary slightly from one day to the next, but if you have fair or poor credit, you may have to make some changes to improve your score. The most important thing to do is pay your bills on time, and if you have any accounts that are past due, get them caught up as soon as you can. Negative items on your credit report become less impactful over time.
The percent of available credit you’re using on revolving lines such as credit cards also affects your credit score. Limit your spending and try to borrow no more than 30 percent of your credit limit.
Know Where You Stand
Before applying for a loan, make sure you know where you stand. Review your credit reports and make sure the information on them is accurate. Errors on your credit report such as wrong payment status or incorrect balances can affect your credit score and what you pay in interest.
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