Whether or not your credit is “good enough” to secure a certain type of loan isn’t as simple as what number it is. It would be nice if there were set cutoffs that were sure determinants of your eligibility for loans or good interest rates. And while your credit score does matter when it comes to what you can be approved for, it’s only one piece of the puzzle.
Here is a breakdown of what various credit scores mean, and what else to look for when you’re trying to figure out where you stand with your credit.
The Credit Scale
FICO scores are the most commonly used scores. These scores can range from 300-850. On a basic level, where your score lies within this range helps lenders and other interested parties determine whether you’re a good candidate for a loan or credit card, what kind of interest rate you qualify for, how much you need to pay for insurance, and even if you would be a good tenant to a landlord.
With your credit score being used for so many aspects of life, it’s important that you do make sound financial choices to keep your score in a good range.
But what is a good range?
The following ranges can give you good idea of where your credit score falls:
750+ – excellent
700-749 – good
650-699 – fair
550-649 – poor
550 and below – bad
This score is calculated by a number of factors, including:
- Payment history (35 percent)
- Credit utilization ratio (30 percent)
- Credit history (15 percent)
- Types of credit (10 percent) variety of debt – auto, credit card, etc.
- New credit (10 percent)
The weight of certain items varies person to person, but this gives you an idea of which factors are generally more important than others.
What your score means
So now that you know where you score lies, and why your score is what it is, you want to know what you can get with the score you have. Each lender decides what they consider “good” or “safe” scores, but generally speaking the lower the score, the more deposits and down payments you’ll have to pay, the higher the interest rates, and the more rejections you’ll face.
If you’re interested in purchasing a house, keep in mind that an FHA (Federal Housing Administration) loan requires a credit score of 500 for home loans, and those with credit scores lower than 579 must make at least a 10 percent down payment. In contrast, those with higher scores are only required to put down 3.5 percent.
As far as mortgages are concerned, if you have a credit score of 740 or above, it’s pretty safe to say you’ll qualify for a good interest rate, and if you’re in the 760-780 range you’ll likely be eligible for the best interest rates. For auto loans, generally, at least 720 is needed for a good interest rate, and 740+ for the best auto rates. Again, it’s important to keep in mind that these numbers are general, and each lender uses their own discretion to assign interest rates and approve loans.
Keep in mind your score is not the only thing that’s considered. Your history and income are also important. Your score could be great at one point, but your ability to repay the amount you’re asking for isn’t evident by your score alone.
If you realize that your score isn’t where you want it to be, make it a goal to improve your score today.