Is your credit score good? Learn how to classify it!

A good credit score is one of the major factors which banks and financial institution consider when you are applying for a credit card, personal loan or even a mortgage.

Whether you want to buy a car, get a credit card, or even rent an apartment, your credit score is crucial. Understanding credit score and its ranges is essential for navigating the financial landscape successfully.

But do you know what exactly a good or bad credit score is and how to improve it? In this article, we’ll explore why your credit score matters so much and how it affects different parts of your life.

What is a credit score?

A credit score is a three-digit number, typically ranging from 300 to 900, representing the likelihood of a particular customer repaying any given amount borrowed.

It is a crucial factor in determining whether someone qualifies for loans, credit cards, mortgages, or other forms of credit, and also influences the terms and interest rates customers may receive.

When talking about personal loans, lower scores means less change of getting the loan approved and a higher probability of paying more interest overtime.

Where the credit score comes from?

Credit scores are generated by reporting agencies or credit bureaus. Those agencies and bureaus would receive an individual’s payment behavior, bills history, and several credit related information from associated banks and financial institutions.

These credit bureaus use mathematical algorithms and scoring models to analyze the data in the credit reports and calculate credit scores.

The most widely used scoring models are FICO (developed by Fair Isaac Corporation) and VantageScore (developed collaboratively by the three major credit bureaus).

While the most well-known credit reporting agencies in the United States are Equifax, Experian, and TransUnion.

What settle poor and excellent credit scores apart?

In order to classify a credit score, you first must now that a credit score range would typically varies from 300 to 850, and the higher the score, the better the individual’s creditworthiness.

As of today, there are five types of score classifications, ranging from poor to excellent. Check out each one below:

Poor (300-579)

Scores in this range indicate a very high credit risk. Individuals with scores in this range are likely to have a history of payment defaults, and possibly even bankruptcies.

Obtaining credit or loans with favorable terms may be challenging, and if approved, they may come with high interest rates.

Fair (580-669)

This range signifies a higher credit risk compared to individuals with better scores. People with fair credit scores may have some negative items on their credit report, such as late payments or collection accounts.

Still, customers with a fair score might qualify for credit products like credit cards and personal loans. Although the terms would usually be shorter, while the interest rates may not be as favorable.

 Good (670-739)

Scores in this range indicate a lower credit risk. People with good credit scores usually have a solid history of on-time payments and responsible credit use.

They are more likely to qualify for credit with reasonable interest rates and longer repayment terms.

Very Good (740-799)

This range reflects a relatively low credit risk. Individuals with very good credit scores have a long history of responsible credit management and may qualify for loans and credit cards with excellent terms, rewards, and lower interest rates.

Excellent (800-850)

Scores in this range indicate an exceptionally low credit risk. Individuals with excellent credit have a long and flawless credit history with no or very few negative items. They are likely to qualify for credit products with the best terms, lowest interest rates, and premium rewards.

It’s important to remember that credit scoring models may vary slightly between different credit bureaus, and each lender may have its own criteria for evaluating credit applications.

Additionally, factors other than credit scores, such as income and employment history, may also influence lending decisions.

How can I improve my credit score?

Monitoring and maintaining a good credit score is crucial for financial health, especially if you are looking to take a personal loan or any kind of financing.

Regularly checking credit reports, correcting errors, paying bills on time, and keeping credit utilization low are some practices that can help individuals improve their credit score.

For customers with a lower score punctuation, who are looking for a faster credit score improvement, some banks and credit unions like companies like Patelco might be an alternative.

As of today, Paltelco and several other banks offer the so-called “credit score builder loan”.

With fair interest and lower amounts, these loans will improve your credit history and therefore your punctuation, provided they are paid on time.

Written by

Alexandre Marcos