Usually, a credit score is rated on a scale from around 400 to 900 – the higher the score, the better. Commonly used scoring systems view it this way …
- a score over 800 means that you’re in the top 10% of the credit population.
- about 710 means you’re just about in the middle.
- a score below about 575 means you are in the bottom 10% of the credit population.
Lender or credit card companies set multiple cutoff points. For example, if you are above 800, you might be offered the Platinum card. If you are above 700, you might be offered the Gold Card. If you are on the border line, your application might be referred to a credit manager for further review.
It is important to remember, that what is a bad score for one lender might be OK to another. (And, there are still some lenders that don’t use scores at all.) Lender’s set their own policies and cutoff points, and they may target their offerings to people in specific ranges of credit scores.
Your Credit Score Is Determined based on the following:
- Payment History: Approximately 35% of your score.
- Amounts Owed: About 30% of your score.
- Length of Credit History: About 15% of your score.
- Pattern of Credit Use: About 10% of your score.
- Types of Credit in Use: About 10% of your score.
More and more often, the decisions are becoming completely automated. A human might not even look at your credit report!
Credit Score Guidelines
In general, a score of 650 or above indicates a very good credit history. People with these scores will usually find the loan process quick and easy, and will have a good chance to obtain a loan at a relatively low rate of interest.
Scores between 620 and 650 indicate basically good credit. (Average FICO scores fall into this range.) People with scores in this range have a good chance at a loan at a good rate, but may have to provide additional documentation and explanations to the lender before the loan is approved.
A score below 620 may prevent a borrower from getting the best interest rates, as they may be considered a greater credit risk-but it does not mean that mortgage funding can’t be found.
Tips On How To Improve Your Score
- Pay your bills on time.
- If you have missed payments, get current and stay current.
- Be aware that paying off a collection account will not remove it from your credit report.
- Keep balances low on credit cards and other “revolving credit.”
- Pay off debt rather than moving it around.
- Don’t close unused credit cards as a short-term strategy to raise your score.
- Don’t open a number of new credit cards that you don’t need, just to increase your available credit.
- If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly.
- Do your rate shopping for a given loan within a focused period of time.
- Re-establish your credit history if you have had problems.
- Note that it’s OK to request and check your own credit report.
- Apply for and open new credit accounts only as needed.
- Note that closing an account doesn’t make it go away.