The vast majority of the population is not financial experts and, therefore, credit score ranges are something of a mystery. You know offhand that these credit score ranges are important and that they do have meaning, but the vast majority of us have no idea what they actually are and what they mean. You can look at your credit and assume that it’s good but it’s actually not. You might think that just because you’ve never made a late payment or missed a payment on anything that yd it’s not. There are so many different things that can have an effect on your credit score, and most of us are vastly under-educated when it comes to most of these facts.
For instance, what exactly is a credit score range? What are the numbers, what do they mean and how do they affect your life? If no one bothers to explain this to you, you’ll remain unaware and that could have a negative effect on your credit. Sometimes just explaining the what and why can make a huge difference in your financial future.
The Definition of a Credit Score
Before we go any farther, let’s talk about this. It’s simple, really, when put into context. Your credit score is within a range of three digits. This number – the higher the better – indicates whether or not you are a reliable borrower. Lenders use this number to rate their risk of losing money when allowing you to borrow from them. The lower the number, the less likely a lender is to want to loan you the funds you want and need to purchase a home or vehicle.
Most lenders use something called your FICO score. There are many credit bureaus, but this one is the most universally used. It stands for Fair Isaac Corporation and it allows you to have a credit score range of 300 to 850; 850 being excellent and 300 being awful.
Now here is where things get a bit tricky. All lenders have their own terms for this number. Some might consider one set of credit score ranges to be good while other lenders have stricter or less stringent policies. For example, one lender might choose not to do business with anyone who has a FICO of 650 or below while another lender might work with you so long as your FICO is above 630. It all just depends on the lender and their own rules. Naturally, this does make things a bit more complicated for borrowers.
What are Credit Score Ranges?
Now we have to get into what we are talking about. Your credit score ranges can go from 300 to 850, and they all mean something different.
300-629 is typically considered bad credit
630-689 is typically considered an average credit score range.
690-719 is typically considered a good credit score range.
720-850 is typically considered an excellent credit score range.
However, your lender might make other considerations and have stricter or less strict policies about this type of information. It all depends, and it always benefits you to ask what your lender requires of your credit score.
How to Keep Your Credit Score Range High
It’s not difficult to keep the range of your credit score high, but it’s also not as simple as just paying your bills on time. You see, a late payment can have a negative effect on your credit, but it is certainly not the only factor considered by the credit bureaus. You have to keep your debt-to-income ratio low. This is why it is common to hear that all debts should be kept as low as 30% or less of your available credit.
In addition to keeping your outstanding balances as low as possible, it is also important to keep your credit score high by not applying for new cards all the time. Don’t cancel all your old ones either.
Bad Credit Score Range – 300-629
This is by far the broadest range in the credit department. There are 329 points at stake here, and it almost seems as if the credit bureau wants you to have poor credit considering the fact that they leave so much room for these people and so little room for others.
To have a score in the bad credit range, you have to do a few things that are considered, well, bad. The best way to earn a score in this credit range is to stop paying your bills on time, to stop paying your bills all together and to ignore mistakes and changes on your credit report. The deal is that most companies do not report your late payments to the credit bureau until they are 30 days or more late. It’s not true in all cases, but it’s pretty common.
What this tells lenders is that you are unreliable. It tells them that you consistently make very, very late payments. This type of credit score range might include foreclosed homes, repossessed vehicles and bills that are deep in the collection process. It’s not good, and most lenders will not even take a look at you as a potential borrower once they see that your credit score falls within this range. You want credit? Forget it.
However, some lenders will issue what they call bad credit loans to those with scores in the bad credit range. However, you better have a high bad credit score in the 600-628 range or no one will consider you.
Average Credit Score Range – 630-689
This is the credit score range in which many people fall. This kind of credit score could mean that you have a few late payments, that you missed a few bills, that you potentially have had a few mishaps in your financial life.
It could also mean that you have too much credit. You can do everything right and still have a lower than acceptable credit score because you have too much of it. A score in this credit range might indicate that you apply for a lot of credit cards and loans, that you max out your credit scores and loans or that you just don’t pay your balances off in full each month. To raise your score from here, it’s time to minimize your debt and start making higher bill payments, ensuring that all payments are on time and avoiding any account closures.
You see, some people mistakenly believe at this point that by closing accounts they will improve their credit score because they will not have so much credit available. All this does is make your available credit even smaller and your debts look even bigger.
For example, if you have three credit cards with $10,000 limits and two of them are maxed out and one has no balance, do not close the third card. You have $30,000 in available credit and are using $20,000 of that, which is just over 65% of your available credit. You cancel that third card and you are left with $20,000 in available credit and $20,000 in used credit. Now you’re using 100% of your available credit, and that looks even worse.
With a credit score in this range, you are more likely to be approved for loans and new cards, but you’ll be paying a higher interest rate than those with higher credit scores than yours, and many cards and loans will not be available to you.
Good Credit Score Range – 690-719
Good credit is great! Well, it’s not great but it’s good. I couldn’t help myself; just a little credit score joke. In all seriousness, though, this is not a bad place to be. If you have good credit that falls into this range, chances are good that you will qualify for most all loans and cards if you should want them. This score shows lenders that are you reliable.
Your credit might not be excellent simply because you have some outstanding balances and you have too much credit. You can raise your score by paying off your outstanding balances and by continuing to pay your expenses on time.
A credit score in this range is good, but you should still check to ensure that everything being reported to the credit bureaus is accurate if you’re sitting here thinking that you don’t have outstanding balances or too much credit. Your score could fall into this range simply because you have a mistake on your report. Check it out and do what you need to do to have it fixed.
Excellent Credit Score Range – 720-850
With a credit score in this range, the world is your oyster. You’ve shown lenders that you are reliable and very low risk. Your report likely shows all on-time payments, very little outstanding debt and responsible credit usage. This is all good.
When you have a credit score this high in this range, it means that you can have almost anything you want so long as your income can support it. You do not have to be rich to have an excellent credit score, either. You need only be responsible.
You will get the best interest rates, the best special financing offers and you will never be turned down for a loan provided the amount is within a range that your annual income supports. Very few people have excellent credit, which means that you’re one of a very few. Lenders want to give you money because they will make money on you without the fear that you will not pay them back. You have more negotiating power with a credit score in this range, too.