Credit scores. It seems like we’re talking about them more than ever. Where to get them, how to track them, and the best ways to improve them.
But why is your credit score so important to so many lenders? What does it tell them about you and how does it help them make decisions about what kind of loan you may be approved for?
Or if you’ll receive one at all?
We’re here to demystify “creditworthiness” in the eyes of some lenders and break down different credit scores, so you can feel more prepared — and less confused, and perhaps a little less frustrated — when you apply for a loan.
Think of your credit score as a financial report card. When lenders pull your credit report, one of the things they look at is your credit score — your “grades,” so to speak — and, based on how high or low your number is, they can estimate how much risk you present as a borrower.
Instead of As, Bs, Cs, and so on, your three-digit credit score is grouped into the following categories (also known as a credit score scale): poor, fair, good, very good, and excellent. While these categories differ slightly between the two main credit calculators (FICO® credit score and VantageScore®)1, they generally fall into the following ranges:
(Learn more about FICO vs. Vantage scores here.)
Where your credit score falls tells many lenders a lot about your financial history. And while it’s not the only factor that determines whether or not you’ll get a loan — and the loan terms you’ll receive — it can be an important one.
When lenders pull your credit report from the 3 credit bureaus — Equifax®, Experian® and TransUnion® — they’ll be able to see much more than where you fall on the credit score scale.
Here’s some of what they’ll review:
The financial industry’s credit model can sometimes feel like a harsh way of deciding who’s worthy enough for a loan, especially if your credit score could use improvement. It’s important to remember that lenders simply want to rest assured that you’ll pay them back, and your credit score, as well as your credit report, helps them do that.
It’s also important to remember there are lenders that look at more than your credit score. You just have to take time to find one that will review your individual situation to help you find the right solution.
No matter what type of credit score you have, it’s important to keep track of your credit report so you can not only be approved for loans, but get the very best rates for repayment. As mandated by the federal government, every U.S. citizen is entitled to one free credit report from each of the 3 credit bureaus each year.4 It’s a great way to prevent unwelcome surprises and work your way to excellent credit.
Sources:
1. https://www.creditkarma.com/advice/i/credit-score-ranges/
2. https://creditcards.usnews.com/articles/what-is-considered-a-good-credit-score
3. https://www.thebalance.com/what-is-a-good-credit-utilization-ratio-960548
4. https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-credit-reporting-act
This post was last modified on %s = human-readable time difference 11:56 am
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