Understanding Credit Scores

bad credit - good creditDo you know your credit score?

Credit scores generally range between the low 300s and the mid-800s, so surely a score of 600 is a good credit score, right?

Actually, a score of 600 is a poor credit score. Your credit score directly affects how much money your loans and other types of financingwill cost you over
your lifetime. Let’s take a look at the breakdown of credit scores:

Excellent credit score: 720 and Up

Credit scores in this range will open up the best interest rates and repayment terms for loans. If you want to make major purchases, such as an investment property, this credit score range is where you want to be.

Good credit score: 680 to 719

A credit report score in the 680-and-up range is good news for you. You can still get decent terms from lenders, although not as nice as those offered to borrowers with truly excellent credit scores. If you’re shopping for a first home, a score in this range is certainly considered to be a good credit score, and it will get you an acceptable mortgage. You’ll likely also be able to refinance your mortgage for better terms on an existing payment structure.

Average credit score: 620 to 679

This is the absolute minimum credit score you can carry and still get fair mortgage terms. Smaller-ticket items that require financing are doable in this range, which is several notches below a good credit score. However, you’ll be better served by reviewing your credit history report and taking steps to improve your credit score.

Poor credit score: 580 to 619

Although you won’t necessarily have any problems getting loans with a credit report score in the high-500 to low-600 range, you’ll get those loans on lenders’ terms. Be ready for higher interest rates, and expect finance charges that will hit you right in the wallet. The good news is that you can build your credit score from here by monitoring your credit reports and by being responsible with your finances. Note that this range is also the lowest workable credit score range if you’re shopping for auto financing.

Bad credit score: 500 to 579

If your credit falls somewhere in this credit score range, financing terms will cost you big-time. For long-term loans, such as a 30-year mortgage, expect to see interest rates that are at least three percent higher than interest rates awarded to borrowers with good credit. For shorter-term loans, like a 36-month auto loan, the effects of your bad credit score are even more pronounced. Expect interest rates almost double those offered to consumers with good credit scores.

Miserable credit score: Less than 500

At this point, your credit score is so bad that getting any type of financing is almost impossible. If you can get loans, they’ll carry nearly punitive interest rates. If your credit report score is below 500, it’s time for action Be sure to get a copy of your credit history report and make an appointment with a credit counselor.

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