Learn the ABCs of credit scores, credit scoring
By Ben Woolsey
If you are completely confused by the concept of credit scores, you are not alone. In fact, you are probably part of the majority that finds themselves befuddled by how credit bureaus compile, calculate and use these scores to determine your creditworthiness, often with the input of credit card companies and other creditors.
|Your keys to getting into the 700-plus credit score club
Having a solid credit history with a credit score over 700 will open doors to money-saving opportunities -- from low-interest mortgages and loans to lower APR credit cards, better insurance rates and even jobs. Here are a slew of tips that can help get you and keep you in the get and keep a great credit score.
A credit score is simply a numeric value that has been assigned to your historical credit habits. The original company that pioneered the creation of this score is called Fair Isaac Corp., which forms the acronym "FICO."
The combination of credit bureaus, credit card issuers and massive databases that warehouse consumer data means that virtually every American now has a credit score. This score is vital to determining whether a person can access low-cost credit, something more expensive or is even eligible to get new credit at all.
In general, the higher the score, the lower the interest rate a person will have to pay on a new credit card or consumer loan. Conversely, a lower score will translate to higher interest and less desirable terms.
FICO-based credit scores can range from a low of 300 all the way up to 850. Lenders generally segment scores into six ranges for the purpose of determining to whom they will make credit offers and at what terms. Anyone below the sixth tier can usually only obtain credit from a subprime credit card lender at very high interest rates. Listed below are the six average credit score ranges used by many of the nation's largest credit card, mortgage and auto lenders:
- 720 – 850
- 700 – 719
- 675 – 699
- 620 – 674
- 560 – 619
- 500 - 559
Individual banks solely determine the credit terms that they offer to each FICO score tier, but in general the best offers go to the top tier. Many of the top credit card issuers specialize in super-prime lending, meaning they target consumers with these tier 1 credit scores. However, competition among the largest issuers could allow those in lower tiers to be considered for leading offers, such as those that feature 0 percent APR introductory rates.
Published: October 27, 2008
- Debt-free seniors may find themselves 'unscorable' – Congratulations! You've paid off your mortgage and all other debt. But you may have lost something else in the process: your credit score ...
- Average credit score climbs in Experian study – The U.S. consumer's average credit score rose 4 points in the past year, nearing pre-recession levels, according to the credit bureau Experian ...
- Fraud alerts: Your credit's first (and free) layer of security – A fraud alert notifies lenders that they should take special precautions to verify your identity before extending credit. But it comes with limitations -- and hassles ...