A credit score ranges from 300 to 850, with each extreme being the worst or best credit. Like football, baseball – or any sport as long as it isn’t golf – the highest score wins.
As a rule of thumb, 50 points is generally seen to be a dividing line between different groups. That is to say that the difference between credit scores of 740 and 745 is quite small, and fairly unimportant. The difference between 695 and 745, however, is very large.
A few points here and there don’t matter. Remember the article on how credit scores are calculated? Go for big wins; not individual points.
We can classify credit scores into a few different ranges:
- Perfect Credit Scores – “Perfect” credit scores are said to be those above 800 points. While credit scores can go as high as 850 – doing so is exceptionally difficult – 800 or better is good enough for perfection. For all practical matters, someone with a score of 800 will get the same deals as a person with a credit score of 850.
- Good Credit Scores – Good credit scores are any scores above 700. Only 58% of Americans have a credit score of 700 or better, with the national average floating around a score of 692. In the 700-800 range, you’ll be approved for most any loan for which you have sufficient income. There may be a minute difference in interest rates for people with 700 scores and 799 scores, however.
- Decent Credit Scores – Is “decent” an official range for credit scores? Nope. But decent is a great description for people with credit scores of 600-699. This group will still qualify for mortgages (albeit at very high interest rates) and some of the bottom rung credit cards. Most people with limited credit history will fall into this credit score range fairly easily.
- Bad Credit Scores – Poor credit scores are anything lower than a 600. In this range of 350-599, borrowers become prey for banks. With each tick down from 599, default rates rise considerably, as do late payments, and general delinquencies. Banks certainly aren’t in the business of losing money, and compensate for excess risk with generally less than favorable lending terms. Of course, there is a very big difference between a 350 score (a 350 is so bad you’d have to try to get one) and a score of 500. This big credit score range is part of the “bad credit” range.
Up ‘n Up: People with “no credit” can generally build a score of 700+ (certifiably “decent”) within one year of opening a credit card or other credit account.
Credit Score Range Importance
Your credit score will be most important in larger financial transactions. For example, someone with a 560 credit score could probably get a high-interest car loan, but a mortgage (even at a super-high interest rate) would likely be rejected by most banks.
Credit card companies can and will lend to people with bad credit or no credit, though you shouldn’t expect the best card available with a 680 score. On the other hand, payday loan lenders and pawn shops will lend money to most anyone at effective annual rates of 300% or more per year.
The more you know: The benefits of a good credit score top out before “perfect credit.” A score of 780 is the best score you can have without sacrificing your life to your credit report. Most lenders use 750 or better as their “top borrowers” category, a selection which used to include scores of 720 or better. In a post-credit crunch environment, lenders are now choosier about who gets a loan.
More specific lending requirements more commonly found in government programs can be the most draining to people with poor credit scores. A mortgage through the Federal Housing Authority requires a credit score of 620 or better. Parent PLUS loans for a dependent’s college expenses require no 90-day late payments.
For-profit institutions are more likely to be flexible in their lending standards with less rigidity in their decisions regarding a borrower’s credit. To that extent, a bank may weigh income more heavily for a mortgage whereas a credit score may be more applicable for a car loan or home equity line of credit. In either case, it pays to have a good credit score, as it serves as the basis for any transaction on credit.
Photo by: Puuikibeach
