Credit Score Ranges Explained and How They Impact Your Money
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Credit scores play a significant role in our finances. They dictate rates on loans and can even impact job prospects and getting a new cell phone plan. You may wonder what the credit score ranges are and if you have good credit.
If you’re new to managing your money or paying off debt, it’s easy to ignore the credit score scales and believe you’re fine. That’s not the case. While imperfect, our credit scores play a pivotal role in our finances.
Credit Score Ranges Explained
Credit score ranges are broad. Typically, the higher you rank in the scale, the more you can anticipate receiving when taking out a loan. Additionally, you can expect to receive better interest rates.
If your score is lower, you can assume you will receive less when applying for loans as well as higher rates, which makes your loan more expensive.
There are two primary credit scoring models – FICO and VantageScore. They each have a unique scoring model, and most fall within the scoring range they measure.
Our article explains how these credit score ranges work, plus covers other areas, including:
- Where to find your free credit score
- What is considered a good credit score
- How to improve your credit score
If you want to know how to improve your credit score rating, this article answers all of your questions.
The FICO Score is the oldest model for credit scores. The Fair Isaac Corporation created FICO, and an overwhelming majority of lenders use the FICO score when making lending decisions.
Fair Isaac has been in business since 1956, and its scoring model has been in use for over three decades. It’s essential to keep in mind that each credit bureau (Equifax, Experian, and TransUnion) assigns scores to individuals independently.
As such, you will often see a difference when comparing scores.
The FICO Score ranges are as follows:
- Poor – 350 – 579
- Fair – 580 – 669
- Good – 670 – 739
- Very Good – 740 – 799
- Excellent – 800 – 850
The above scores use the FICO Score 8 model. You may see industry-specific FICO Scores go as low as 300 for some credit cards and consumer loans.
Lenders use your credit score rating to assess the chance of risk of default. Default occurs when you fail to repay a debt.
Your credit score typically plays a direct role in the interest rate you receive on a loan. The lower your rate, the less interest you pay.
On a mortgage, for example, an interest rate difference of one percent will likely result in tens of thousands of dollars in additional interest over the life of a loan.
As you can see, it’s desirable to rank high within the credit score scale to save money on loans.
VantageScore is the other major credit scoring model used by lenders. This credit scoring system comprises all three credit bureaus, so you see one credit score versus three with FICO.
VantageScore is considerably younger than FICO, beginning in 2006. The latest version of VantageScore is 4.0, but most lenders use the VantageScore 3.0 model to assign scores.
VantageScore ranges work similar to the FICO model, ranging from 300 – 850 and break down the same way from poor to excellent. The simplified credit score from VantageScore seemingly makes it easier to follow.
Regardless of simplicity, VantageScore operates similar to FICO. With a higher score, you have an improved chance of receiving a loan, and at a lower interest rate.
What Is Considered A Good Credit Score?
When considering credit score ranges, it’s understandable to ask yourself, “what is a good credit score?” A good credit score is a somewhat relative term as it depends on what you want to accomplish and the lender extending you credit.
The average credit score is 704, according to Fico.com. You can see the average credit score by State at CNBC. They list the lowest average credit score in Mississippi at 652 and the highest average credit score in Minnesota at 713.
Alternatively, Experian reports the average VantageScore at 675 throughout the country.
Generally, a credit score of at least 720 allows you to receive the best possible terms. Again, this varies on the type of loan you want and how the lender views you as a risk.
How Credit Scores Are Used by Lenders
Credit scores are semi-objective numbers based on your particular situation. Scores impact your ability to receive a loan, as well as the associated interest rate.
However, many lenders are subjective in their determination of whether to extend you a loan. They look at your credit score and history and make their determination.
Other factors include the size of the loan you’re requesting, as well as your ability to explain your particular situation.
This subjectivity does not mean you should ignore credit score ranges, but rather have a deeper understanding of how it impacts your finances.
How to Get Your Credit Scores
Whether you’re working to pay off debt or preparing to apply for a loan, you may ask yourself, “how can I check my credit score?”. You have multiple choices to get your credit scores. Those include:
- Your bank
- Your credit card issuer
In most cases, the above allows you to receive a free credit score. It’s also possible to buy your score from all three reporting agencies at myFICO.com. This option, as well as your bank or credit card issuer, provide your FICO Score.
If you want to get your VantageScore, you can receive that from Experian or TransUnion.
Another option is to receive your credit report. While this will not provide your credit score, it allows you to view your credit history.
The government allows you to receive a free report from each of the three agencies every 12 months. You can do this at AnnualCreditReport.com.
Who Can See Your Credit Score or Report?
Understandably, banks or credit card issuers can access your credit score or report. They’re just the tip of the iceberg as numerous entities can see your credit. Those include:
- Any entity with a court order
- Collection agencies
- Government agencies
- Insurance companies
- Student loan providers
- Utility companies
Although this is an extensive list, most companies can only access your credit before you initiate business. You should always check your credit score before seeking a loan or other major service.
You may also want to determine how to check your credit score so you can make any necessary moves to improve it before moving forward.
How to Improve Your Credit Score
Although imperfect, a credit score chart may reveal the need to improve your credit score. Before moving forward, it’s essential to know what’s in a credit score.
The following factors compose your FICO score calculation:
- Payment history – 35 percent
- Amounts owed – 30 percent
- Length of credit history – 15 percent
- Credit mix – 10 percent
- New credit – 10 percent
Similarly, the following factors determine your VantageScore:
- Payment history – 40 percent
- Age and type of credit – 21 percent
- Percent of credit used – 20 percent
- Amounts owed – 11 percent
- New credit and inquiries – 5 percent
- Available credit – 3 percent
Despite the slight differences, there are several key takeaways to boost your credit score and are described below.
Make Timely Payments
Any credit score calculator tells you that payment history comprises the most substantial part of your credit score. If you need to improve your standing, this is the first place to start.
Write down each of your outstanding loans and credit cards and when payments are due. You’re unable to do anything about payments you’ve missed in the past, but correcting those actions now will help improve your credit score.
Pay Down Debt
Paying down debt fits naturally with making timely payments. As you pay down your debt, plan to pay more than the minimum; doing so will pay off the debt quicker and save you money in the long-term.
It also directly impacts your credit score, helping you save even more money in the future.
If you have high-interest debt, it may be best to consolidate the loans to save money on interest and pay it off quicker.
Avant is an excellent option and may allow you to slash rates by half or more.
Don’t Apply for New Loans
Applying for a new credit card or loan is too easy. If you need to improve your credit, you need to avoid applying for any new loans or credit cards.
While new credit only comprises ten percent of your score, it also shows signs of risk to potential lenders. If they see you’ve applied for multiple loans in the recent past and applying for a new one from them, they will likely think twice about extending credit.
Get A Credit Builder Loan
Credit builder loans are not for everyone. They are specifically for people who have little to no credit history, or for those to rebuild their credit.
Credit builder loans are a straightforward way to boost your credit. The issuing bank loans you money they put into a savings account for you.
You make monthly payments to repay the loan, and upon completion of payments, you receive the money in the account. This plan lets you prove your credibility without taking on too much risk.
Credit Strong is our favorite provider of these loans as they offer one of the lowest rates in the space.
Become an Authorized User
An excellent way to improve your credit score is to become an authorized user on the credit card of a family member. Doing so allows you to benefit from their payment history to help boost your standing.
*Related: Do you want to save a lot of money this year? Read our guide on how to save $10,000 in a year to beef up your savings account.*
This option is not without risk. If you become an authorized user for someone that has poor credit, it will negatively impact you. You must also commit to not overspending on the card.
However, if they are financially astute and you don’t spend, this is a terrific way to improve credit.
Before working to boost your credit score, know that it takes time. You won’t improve it overnight, but don’t let that discourage your efforts. With a little work, you will realize success.
Credit Score Scale: Bottom Line
Credit score ranges are essential to understand how to manage your finances properly. They impact your ability to receive loans and how much they will cost you.
As you consider the credit scale, know that your credit score isn’t a be-all and end-all for personal finance. It does not dictate whether you can repay a loan, or even if you should take a loan.
Lenders also consider things like income, types of other debt you have, and your background before extending a loan. Yes, it’s essential to know where you stand in the credit score range, but it’s a small part of living a financially well-balanced life.
How often do you check your credit score? What are your takeaways from the credit score ranges? What other factors do you consider necessary for financial stability?
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.
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