Like many of the articles on this site, I’m going to keep this short and simple.
The credit Score.
It’s an aspect of finance that everyone should understand, and it’s important because it is a way for lenders to gauge whether you will be approved on an application for a credit card, loan, mortgage, or many other financial products. Knowing the basics is a good start.
Credit Score Basics
A credit score is a numerical value that gauges your creditworthiness in the eyes of a lender or bank. A credit score falls within a certain range of values, and the most common range is 300 to 850. There are several credit scoring models offered by companies; for the sake of simplicity, this article is based off the VantageScore 3.0 system. Just know that the other scoring systems are pretty similar.
If you have a good credit score, then you are deemed more creditworthy. If it’s bad, then you are deemed less creditworthy. You want a good to excellent credit score.
Ranges of Credit Scores
850 is an excellent credit score, and 300 is a very bad credit score. There is more to it than that. A credit score ranging from 300 to 549 is considered very bad. A range of 550 to 649 is considered just bad. A range of 650 to 699 is ok or “fair.” 700 to 749 is good. And 750 to 850 is an excellent credit score.
Why Your Credit Score Matters
If you have a credit score that is good to excellent, then you are more likely to get approved for one of the financial service or product mentioned earlier. Also, you are more likely to get favorable terms and conditions for said financial service or product.
Conversely, if you have a very bad or just bad credit score, then you are less likely to get approved. If you do get approved, then the terms and conditions are typically not ideal. It’s just an easier time applying for a financial product with an excellent credit score.
You’re not in terrible standing with a fair credit score, but you’re also not going to get the best deal on an application either.
More About Credit Score
Those are the basics for what a credit score is, but there is so much more to it than that.
For instance, what exactly determines your credit score? If your score is low, then how do you get a better credit score? What terms and conditions were we talking about earlier? How do you check your credit? Do you even have credit?
For now, it’s important to know that a high credit score is ideal and a low credit score poses problems to anyone applying for a credit card, mortgage, etc. Credit scores CAN change over time, so if you’re in the dumps about not being creditworthy, know that it’s not permanent. It is a problem though!