One of the main areas of concern for an individual seeking a loan, mortgage, renting a house, among others has always been what is the credit score. These services are fairly easy for a person with a good credit score but for an individual with a bad credit score is a hassle. However, the question that arises is what really is a bad or a good credit score? Today we discuss all these aspects in the article:
What Are Credit Score Ranges?
A credit score is basically a numerical expression of one’s potential risk of being involved in credit activity. It assists in assessing the risk in the issuance of credit. The most widely used scoring model is the FICO model that ranges from 300 to 850 points. Another most widely used scoring model is VantageScore which is also on the FICO model scale range. This information provides the basis for lenders’ subjective evaluations of the probability of the borrower repaying the debt in the future.
Breaking Down the FICO Credit Score Range
Below is the detailed credit score range and rating for FICO model:
FICO Credit Score Range
Rating – 300-579
What It Means – Poor
You’re considered a high-risk borrower. Loans and credit approvals are unlikely.
Rating – 580-669
What It Means – Fair
Limited credit opportunities with higher interest rates and less favorable terms.
Rating – 670-739
What It Means – Good
Indicates reliable credit behavior; better rates and approvals are more com
mon.
Rating – 740-799
What It Means – Very Good
Access to competitive interest rates and premium credit card offers.
Rating – 800-850
What It Means – Excellent
The best credit terms, lowest rates, and top-tier rewards are available to you.
Reasons to be Concerned About Credit Score Range
The credit score can be very crucial in so many life’s aspects for the individual such as:
- Loan Approval: A good credit score increases the chances of borrowers being accepted for loans as well as credit cards.
- Interest Rates: Borrowers that have a good credit rating tend to pay lower interest rates which helps them save if done in the long run.
- Benefits of Credit Cards: Possessing good premium credit cards that have better earnings and benefits are reserved for the usage of people with “good” credit only.
In today’s time there are many AI Credit Repair Tools where you can check your credit score and improve it.
What Are The Factors Used To Determine Credit Score?
There are five key components majorly used to determine what one’s credit score will be:
- Payment History (35%)
On-time payments are the primary determining factor for your score. If a payment is missed, it can cause issues and even a decline in the score.
- Credit Utilization (30%)
This determines the amount of credit an individual is using in relation to the total amount of credit they have available. It is recommended to keep this below 30 percent in order to maintain a good score.
- Length of Credit History (15%)
The more aged the history of credit an individual has is beneficial, it indicates that the individual is able to successfully manage credit.
- Credit Mix (10%)
Having a variety of credit accounts such as a credit card, mortgage, and loans can help boost one’s credit score.
- New Credit Inquiries (10%)
Opening a lot of new accounts and getting too much credit is a bad idea, as this approach can negatively impact your score in the interim.
What Is a Good Credit Score Range?
A good credit score range (670-739) is often seen as the threshold for financial stability.
Here’s why it matters:
- You’ll likely qualify for most loans or credit cards.
- Interest rates and terms will generally be more favorable.
- You’ll be better positioned to access higher credit limits and premium financial products.
- Reaching this range requires consistent and responsible credit management, but the financial benefits make it worth the effort.
How to Improve Your Credit Score
Improving your credit score isn’t an overnight process, but it’s entirely possible with the right approach. Here’s how:
- Make Timely Payments
Set reminders or automate payments to ensure you never miss a due date.
- Lower Your Credit Utilization
Pay down existing debts to keep your utilization ratio below 30%.
- Check Your Credit Report Regularly and dispute inaccuracies
Errors can hurt your score. Review your credit report and dispute any inaccuracies.
- Limit New Credit Applications
Avoid opening multiple new credit accounts within a short period.
- Keep Old Accounts Open
Even if you don’t use an old credit card, keeping the account open adds to your credit history and boosts your score.
Read More: Data Analysis for Finance Manager Insights
Myths About Credit Scores You Should Ignore
Understanding credit scores also means separating fact from fiction. Here are common myths debunked:
Checking Your Own Credit Hurts Your Score: False. Checking your score through a soft inquiry has no impact on your credit.
Closing Old Accounts Improves Your Score: False. Closing accounts can shorten your credit history and lower your score.
You Need a High Income for a Good Score: False. Your score is based on how you manage credit, not how much you earn.
Conclusion
The ranges of credit scores not only know what shaped your past, but also shape what you want the future to be. All you have to do is ensure that you do not deviating off the course you set, it could be when you wish to cross from the fair credit score range to unlimited range up there.
A good credit score range means, interest rates are significantly lower and more credit rewards are available. The little things make the difference, such as monitoring the score, paying bills on refunds, and scaling down based debts. It may take time, it may take practice. But the bottom line, that is moving up the credit score ranking system, will definitely feel like earning money.
