Guide to the Credit Score Chart

A credit score is one of the most important numbers in one’s life. It is a numerical expression based on the statistical analysis of a person’s credit files and it is used to represent the creditworthiness of that person.

In United States, a credit score is primarily based on the credit report information, typically from one of the three major credit bureaus: Experian, TransUnion and Equifax. It is important for you to bear in mind that income is not considered by these major credit bureaus when calculating a credit score.

Currently, these bureaus are using a standard credit score scale which is known as the FICO (Fair Isaac Co.). It classifies an individual’s credit risk using a score of between 300 and 850. According to FICO, the average credit score for Americans is about 723.

Basically credit scores are used by the banks, financial institutions and credit card companies to evaluate the potential risks posed by lending money to consumers and to mitigate losses due to bad debt. Besides, credit scores are used to determine whether the applicants are qualified for loans, if they are qualified, at what interest rates and credit limits they should be offered.

There are two KEY things we need to know when we are learning about the credit score chart. Firstly, we need to understand the FIVE main factors that are used to determine the credit score of a person and how these factors are weighted. Secondly, we need to learn how to read and understand a credit report.

The credit score is made up of:

1. The record of timely payment on loans (35%)
2. The types of debts and the total outstanding balance (30%)
3. The length of credit history (15%)
4. Types of credit used/The mix of credit accounts (10%)
5. Applications for new credit/Number and types of accounts opened recently (10%)

Then, let’s see the details of the scores:

700 – 850: Excellent Credit
If you fall under this category, it means that you are definitely qualified for a fair repayment terms and the lowest interest rates.

680 – 699: Good Credit
Ones will usually be approved for loans with favorable terms by their lenders.

620- 679: Reasonable Credit
For those who fall under this ranking, they are normally offered for loans but they won’t be able to borrow at the best interest rates.

550- 680: Poor credit
Not many lenders are willing to approve the applications of people who are having these scores. Some lenders can offer the loans but with very high interest rates.

Below 550: Very bad credit
It is very difficult for people who have these scores to obtain loans from lenders. It is a must for them to consider ‘credit repair’ before applying any loan.

Last but not the least; besides knowing the credit score, it is also important to know more about credit report. A credit report consists of 4 sections:

  1. identifying information – information to identify who you are
  2. credit history – your trade lines
  3. public records – whether you have any legal proceedings
  4. inquiries – your new applications for credit

By having a better understanding about your credit score and credit report, you are able to make better financial decisions in your life.

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