Deciphering the Code That Is Credit Score

A string of what seemed to be the longest, non-stop misfortune ever is starting to take its toil. Almost every financial institution has closed its doors on your face, or if a door finally opens, you are mandated to literally wedge your way in. These are two of the frequent pathways a marked man has to trudge through along the alleys of the financial world.

Two little words that can impact the way you live your life---credit score. From auto to mortgage and every loan in between, credit score remains to be the benchmark whether your loan will bear agreeable rates or exorbitant fees; or whether your application is even worth considering. This is just like entering collegiate level. You have with you your grade point average, the higher your GPA, the better your chance of landing a spot in one of the Ivy League schools. However, this credit score rating is a little more complicated than that. 

Quite a lot of people have these frequently asked queries with regard to their credit scores rating. There are those that ask how credit bureaus arrive with this figure; there are those that ask, ‘how can I improve my credit score?’ Then there are those that only see gibberish written on a piece of paper tagged as credit score report. Knowing where you stand is one of the initial steps in credit score interpretation. High credit score is equivalent to loan approvals and low interest; low credit score ratings have the opposite effect.

Almost everyone is familiar with this straight forward credit score explanation. Unfortunately, these same individuals do not see the point of knowing how high their credit scores have to be in order to acquire these perks or advantages.

With that said, let us first tackle the basics, definition. Credit scores are numbers scientifically arrived at in order to assess a person’s credit risk. These scores range from 300 to 850 and usually answer the question, ‘Are you worthy?’  Each of thethree main credit agencies score your credit founded on their own set of deciding factors or criteria. These factors may include the length of time a tradeline or credit line has been open, amount of available credit, payment history, defaults, bankruptcies, number of tradelines (both recent and old ones), types of credit in use, and debt to credit ratio.

Credit scoring becomes confusing when a consumer sees two different credit score rating coming from two of the three principal credit bureaus. Every financial institution has its own credit score rating system or method, which is uniquely theirs. They formulated it, perfected it, and (unluckily) kept it behind locked doors.

Therefore differences are bound to occur. Though this fact does not make one agency more accurate than the other. Again, they have devised their own system on how to get credit scores, and questioning it without knowing how it works is clearly absurd.

FICO or Fair Isaac credit score, let’s focus on this brand of credit score. A FICO score shows digits scaling from 300 to 850. If you are part of the select few who enjoy an excellent score of 850, then you need not sweat my friend. No worries. You are placed on the pedestal of credit worthiness—best loans and low interest rates are yours. How about a 770, will this get me low interest rate? Will banks provide me with a better deal having a 720 credit score as compared when I had a 715? The answer to the first one is yes, and the answer to the second is no. Like a report card bearing A’s, B’s, C’s and F’s representing a certain scope of numerical grades, credit scores also has it’s A’s, B’s C’s and F’s. Poor, fair, average, good, and excellent; these are your FICO credit score classifications.

A score of 619 and below puts you under the poor credit category. Fair credit scores are within the range of 620 to 659. Average scores are contained in the zone of 660 to 720. A good score is equal to 721 to 749. And lastly, an excellent credit score swirls within the region of 750 and above. Given these categories, the 715 to 720 question earlier, these point differences, does not necessitate a better deal from lending institutions because they are clearly within the same category, which is average.

So don’t sweat much if your score dropped from 720 down to 715, you are still hanging on the ledge of average credit score and still have the chance of getting a loan at a subtle rate. Just make sure not to fall on a lower category.