Your credit score is based on a formula meant to predict credit worthiness. Credit worthiness is focused on telling the lender the likelihood the borrower will default on the loan. So this is important!
Credit scores range from 300 to 850. Lower scores indicates the likelihood of default high, and vice versa. Having a low credit score doesn’t mean you won’t get a loan. However, to offset the risk of default, the lender will charge a larger interest rate. High score, higher likelihood of getting a loan with a lower interest rate.
Here’s what the scores mean:
800+ Excellent – If you have a score in this range, you don’t need me! Getting a loan should be absolutely no problem.
700-799 Very Good – Approximately 27% of people in the US have a score in this range. This range will get you very good rates and approval for just about any loan you’d like.
680-699 Good – This range is the average score. Even though interest rates may be slightly higher, loan approval rates are good. If you are in this range and you are looking to get a mortgage loan, increasing your score to 720 will help qualify you for a lower interest rate and save you money.
620-679 OK or Fair – You may find the rates you are offered are not the best. You may still be able to get approved for a loan, however you may pay more and have some restrictions.
580-619 Poor – With scores in this range, you can still get approved however the terms and interest rates won’t be very appealing. Likely, you will pay more and pay longer.
500-579 Bad – People with bad credit, you will not be able to get a loan with good terms. Often times, people with a score in this range may be applying for debt consolidation loans and should do so cautiously so as to not default.
499 and Lower Very Bad – If your score is in this range, you should seek assistance from a credit repair professional such as myself. This is the least optimal range to fall in as you will have to look for a sub-prime loan, which won’t be easy. You will be paying the highest rates under the most strict terms. Borrowing while in this range is not recommended. Work on your improving your credit score first.