Normally, we'd build a tool to help you answer a question like this, but this time, let's explore just what your credit score means in terms of your potential mortgage, car loan, insurance premiums and credit card interest rates in infographic form, courtesy of Credit.org's Lori Lamb (HT: Angelo Cosentino):
For those who prefer their information in text format, here are Lori's comments for each category:
Here’s a rough guide to what various score ranges mean:
300-550: Poor credit. It is generally accepted that credit scores below 550 are going to result in a rejection of credit every time. If your score has fallen into this range, you need to work to improve your score. Often a bankruptcy filing will bring a score down to this level; over time, the score will improve if you make your payments on time, every time. Statistically, borrowers with scores this low default approximately 75% of the time.
550-620: Subprime. It’s possible to get credit in this range, but not guaranteed. If you do get a loan, it will be at very disadvantageous terms: you will pay much higher interest rates and penalty fees. In this range it is worthwhile to address any specific credit problems you have and try to boost your score before applying for credit. In this range, borrowers typically default 50% of the time.
620-680: Acceptable. Scores in the mid 600’s mean you will most likely be given credit when you apply for it. You still won’t get the best interest rates, but borrowers with scores over 620 are considered less risky and are therefore likely to be approved. In this range, borrowers can expect to qualify for a prime rate. Traditionally, “Prime” loans could be easily sold to Fannie Mae or Freddie Mac. Default rates in this range are between 15 and 30%.
680-740: Good credit. Scores around 700 are considered the threshold to “good” credit. Borrowers in this range will almost always be approved for a loan, and be offered very good interest rates. At this credit score, lenders are comfortable with the borrower, and the decision to extend credit is much easier. According to FICO, the median credit score in the U.S. is in this range, at 723. Borrowers in this range only default 5% of the time.
740-850: Excellent credit. Anything in the mid 700’s and higher is considered excellent credit, and will be greeted by easy credit approvals and the very best interest rates. In this high-end of credit scoring, extra points don’t improve your loan terms much. Most lenders count a credit score of 760 as just as good as a score over 800. Some people take this to mean that it’s not worth the effort to continue to improve your score after you get into this range, but as always, the higher your score, the better. Even if an extra 50 points in this range doesn’t help you get a better interest rate on your next loan, they can serve as a buffer if you have a negative item show up on your report (maxing out a credit card can penalize you 30-50 points. If your score is near 800, the resulting damage won’t push you down into a lower tier). The default rate in this range is approximately 2%.
As for how much company you have in your credit score bracket:
According to FICO, the following proportions of consumers have scores in the following ranges:
- Up to 499: 2%
- 500-549: 5%
- 550-599: 8%
- 600-649: 12%
- 650-699: 15%
- 700-749: 18%
- 750-799: 27%
- 800-850: 13%
Fair Isaac, the outfit behind the FICO credit score, has previously stated that the median credit score in the U.S., which marks the score at which nearly half of all Americans have either a higher or lower score, was 725.
Labels: personal finance
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