We talk a lot about the importance of a good credit score and steps you can take if you want to raise your score. But do you know why? A credit score that falls in the good or excellent range will get you better terms and lower interest rates than having a score that’s rated fair or poor. This is because your credit score is a reflection of the level of risk you present to potential lenders when it comes to paying them back on a loan or credit card. While there are variables in scoring models and lending criteria among lenders, it’s important to know in a general way where you fall on the credit score range, as it can help you understand which financial products you’re eligible for and the terms you might expect.
Below is a general guideline of how your credit score range (whether FICO or VantageScore) can affect your financial options.
- Excellent (Above mid-700s)
While an excellent credit rating doesn’t guarantee the loan you want, people with top credit scores are likely to not have an application denied based on their credit scores. If your credit score falls in this range, you have the greatest flexibility in shopping around for the best package you can find. You’re more likely to receive a low interest rate and have the greatest number of options available to you for choosing repayment periods or other terms.
- Fair to Good (Low-600s to mid-700s)
When your credit score falls in the fair to good range, you’ll still have the ability to compare your options and look for the best package from different lenders — but may not be able to secure the absolute best terms. You may not get the lowest interest rate available and you may also not have as much flexibility in payment terms.
- Poor to Fair (300 to low 600s)
Having a poor to fair rating means you may not be able to get approved for a loan or unsecured credit card. If a lender or creditor does approve your application, you may be subject to higher interest rates and/or have fewer repayment options. If you’re looking for a credit card, you may have better luck with a secured credit card.
If your score isn’t quite where you want it to be, perhaps now is a good time to set some goals for the new year and put a plan together that will help you get your rating higher. We’ll talk more about that in future posts, so be sure to check back!