Having a good credit score is no doubt the issue that all of us may have concerned at one time or another when applying for a loan or getting denied credit. As lenders use your credit score for evaluating your credit application, you want to improve your credit score long before you plan to apply for a large loan.
As you may already know, your credit score will tell lenders how likely you are going to pay your bills. The higher your score, the higher your chance you have of getting approved for a loan and the lower interest rates the lender is willing to offer. For this reason, you need to understand what good credit score range is so you can take steps to improve it if the score is lower than that range.
FICO Credit Score Scale
The industry standard of credit scoring system that represents the level of credit worthiness of consumer is the FICO score. The FICO credit score, developed by Fair Isaac Corp., has a credit score range of 300-850. This is also the same credit score range used by credit bureaus, which have their own unique systems of compiling scores.
According to a report made by Fair Isaac Corp., majority of people in the U.S. have scores between 600 and 850, with the median (half of scores above and below) is 723. A score that is 720 or higher is considered a good score and below 600 is considered a poor rating. The following are details of credit score ranges:
- Good Credit Score – If you have a 700 credit score or higher, that means you have very good to excellent credit. For some lenders, the best credit score ranges are from 720 and above — the lenders will probably offer you the best rate. But if you have a credit score between 680 and 699, that still means good and you can get a loan with normal rates.
- Average Credit Score – A credit score range of 620 to 679 is average and majority of people in the United States have scores along that range. It means you won’t get denied but the terms are not going to be that generous either.
- Low Credit Score – A credit score range of 580 to 619 is considered low credit score, but it does not mean that you can’t get any credit. You can get a loan but the interest rates are probably going to be very high. The good news is through simple credit improvement tips, you can change low credit to good credit.
- Bad Credit Score – This is where the trouble starts. Your credit is bad. You will still get a loan but at sub-prime rates and you won’t like the terms. Still, you probably should take it anyway because a new loan could offer you a fresh new start to building your credit.
What If You Don’t Have a Good Credit Score?
Understanding the ranges of good credit scores come in handy when you are faced with inconsistent or low credit scores. However, this does not mean that if you are scoring below 720 you have no chance of getting credit. The fact is lenders may still approve credits even if you have low credit scores.
Even people with bad credit can get approved for a loan just as people with perfect scores can get denied. The credit score range reflects only the likelihood of whether you’re going to be approved or not. There are many factors involved in a loan approval and your credit score is only one of them.
Want to get a loan? Get your credit report long before you apply for the loan to get an idea of what interest rate to expect and to dispute any errors on your report. If your score is not too low it might take less than 12 months to be in a good credit score range, and you can get a lower interest rate.