How Your Credit Scores Are Viewed
Getting your credit score is the first step certainly, but what do all those numbers mean, and more importantly how will the banks interpret them when you apply for a new credit card. Evaluating your credit history can be as frustrating as getting your scores, but the following information will help you easily determine what your scores mean.
First, it is important to note that we will skip how you the credit bureaus determined your score to begin with, saving that topic for another article. This will allow us to jump right into what your scores mean.
To begin with, the vital score the credit bureaus will provide you in your report will be what is know as your FICO score. The FICO scores are the classic scoring range that has been used for years by auto lenders, banks, and other financial institutions to determine your credit worthiness. Recently introduced in addition to the FICO is the VantageScore which provides a numeric range scoring system along with a letter grading range.
VantageScore range vs. FICO - score range
VantageScore range: 501-990
FICO range: 300-850
Letter Scoring
VantageScore: A to F
FICO: none
Cutting to the chase between the two scoring systems, as of this writing, your FICO score is in more widespread use by banks to help determine an applicants risk for financial instruments ranging from mortgage loans, auto lending, and credit cards. The VantageScore is more lenient in their scoring algorithm typically providing higher credit ratings to consumers than the FICO scoring algorithm.
Our recommendation is to focus your efforts on improving your FICO score and ignoring the VantageScore for the time being until more banks start using their ratings.
Now on to the banks. The banking industry uses these scores to determine your credit worthiness when you apply for a loan of some type. Put simply the score you are given in your credit report is a direct assesment of the financial risk you pose as a borrower. The banks will request a reporting of your credit and based oupon your score determine whether you can be approved for the credit card or loan you are applying for. BUT... It doesn't just stop there.
What is less widely known is that your score does not just reveal whether you can be approved or declined for your new credit card, though that is a consideration if your scores are too low to qualify at all. Your credit scores are also used by the bank to determine and adjust the interest rate that you pay on your new account. This is especially common with mortgage lenders, auto loans, and credit cards. A bank may determine that you qualify for approval within a range of 600 - 900 FICO but where you fall within that window will determine if they can and will offer you the best interest rates they have available, or on the other hand, jack up the interest rates in their favor, in order to offset the additional risks of lending to lower scores.
Though Banks are allowed to look at credit scores differently and create policy of their choice, the following is a generally reliable chart on how Banks look at your credit score.
800-900+ Credit Score
Finding yourself between the range of 800 to 900+ with your credit score is considered as having a near perfect history and very high credit worthiness. If your score is accompanied with a lengthy credit history than Banks will look at the risk of lending to you very favorably, qualifying you for A paper loans and credit lines with the benefits of low interest rates and generous terms.
710-800 Credit Score
If your scores fall within this range you are considered by banks to have great credit. You qualify for all but the most stringent of lending programs and should not expect to encounter any interest rate hikes due to risk. Nearly a quarter of U.S. consumers can boast a FICO score within this range and should have no problems qualfying for credit checks.
680-710 Credit Score
Holding a credit score range within 680-710 is considered to be good credit with a few missteps hear or their in the history of your report. As a borrower within this score range you can expect some banks to slightly increase interest rates for the credit lines you apply for. This is the range that Banks start to look at as posing an additional risk for approval and requiring additional fees and rates to be levied for qualification.
610-680 Credit Score
Within this range most banks will look at you as having average credit. Credit cards for people with average credit and loans will approve your application but you can expect to pay middle of the road rates and interest with your desired credit line.
580-610 Credit Score
This range is an important cutoff point for most banks. Falling within 580-610 means you are viewed by some institutions as subprime, or a below average credit risk. To other institutions you still will meet the cutoff point for approval but without any interest rate benefits. If you fall within this range you will start to see yourself getting declined for average credit offers and feel you are getting pushed into bad credit offers.
580 & Below Credit Scores
If your credit score is below 580, you are considered as having bad credit by the banks. A credit score of 500 is viewed as worse than a 560 FICO score but in either case you will not be able to qualify for most average lending offers. A paper mortgages are certainly out of the question and prime credit cards will decline you out of hand. All is not lost, there are a variety of no credit check or bad credit offers that can help you reestablish a history to improve your score but it will take time and effort.
If you find yourself with a bad credit score full of derogatory items, we recommend you start work to improve your credit today, not tomorrow. In addition to gaining access to borrowed money when you need it most, there are a variety of benefits to improving your credit reputation in the banks eyes. Most importantly ythe costs of borrowing goes down dramatically as your score improves. Your local bank may look at you as a credit risk now, but with time, energy, and perhaps some professional help, you can return to a favorable credit rating.
