Have you been contemplating the idea of purchasing a house or car in the near future? Have you thought about checking your credit score? Well, it may be a good idea to do so, because a bad score or credit history could be standing between you and the loan you need. Also, a bad credit score could mean that while you’ll get a loan, the terms, conditions, and interest rates could be higher than necessary. So, before you start applying for financing, it would be a good idea to look into your score, and to find out what you can do to improve it so that you will get the best rates possible.
What is a Credit Score?
Your credit score is a main factor when it comes time to determine if you will be eligible for certain loans or not. Also, any company that you apply for a credit card with will check this information as well. Most individuals are unaware about how much their credit score matters, and especially, how they’re calculated – there is a lot of criteria that is considered during this process of preparing a report of your credit history and score.
Credit Score Scale
The scale for a credit score starts low at 300 and runs as high as 850. A risky score, meaning that banks and lenders will be wary of loaning you money, is below 500. However, if your score is around 700 or higher, you will have a good chance of being offered loans with good interest rates. Your credit score is based off of a credit scale, which is calculated by using a special mathematical formula. If you are curious about what your credit score is, you can check with FICO or any other authorized bureaus.
FICO, also known as the Fair Isaac Corporation, is the most trusted and popular of the credit corporatons that measure a credit score. The system they use to create scores is called VantageScore, and according to it, any score above 720 is excellent and below 600 is poor. Scores falling around 600 or 700 are considered average.
Prior to entering into the loan application process, it is a good idea to pull a credit report. However, you must understand that your credit score will not be included in this report – instead, lenders will look at the scores based on the information within the application that you submit for a loan. The credit scores themselves are calculated by a credit bureau.
Good Credit Score
Since every financial institution uses a varying credit scoring system, the lender is the one who decides which credit scores and good and which are bad. They make this decision based on your credit report and history with credit, however you can always get an idea of how your credit score stands by ordering a VantageScore and VantageScore Report.
The scoring system used by VantageScore is labeled as A, B, C, D, and F. A is the highest score on this scale, landing between 901-900, while F is a bad score, ranging from 501-600. It is a general assumption that if you VantageScore is rated highly, your other credit scores will follow.
Always remember that it is highly unlikely that anyone would have a perfect credit score. This is due to the fact that every credit has risk, and those will show in your score – the goal is to keep the risk minimal and to stay on top of all payments, so that your score stays high.
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