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Understanding Your Credit Score

Written by prositesfinancialDec 29 • 2 minute read

A credit score is a figure that lenders use to determine your likelihood of repaying a loan on time. It’s built on your credit history, and the FICO® Score ranges between 300 and 850. You need a decent credit score to improve your financial well-being, and the higher it is, the less likely lenders are to view you as a credit risk.

Types of Credit Scores

There are two types of credit scores:

  • Generic scores: These scores are used by lenders to determine your general credit risk. Your generic score is presented as one number based on the same formula across all credit reporting agencies.
  • Custom credit scores: These scores are developed by individual lenders, and they rely on credit reports and other financial information from the entity’s own portfolio. Custom credit scores often apply to specific types of lending, such as auto lending or mortgage lending.

Credit Score Factors

Credit score factors are the elements from your credit report that influence your credit scores. Some of the factors that may shape your credit scores include:

  • Your total debt
  • Number of late payments
  • Types of accounts
  • Age of accounts

Credit score factors indicate what parameters of your credit history most impacted your credit score at the time of calculation. Additionally, they indicate issues you can address in your credit history to improve your creditworthiness over time.

Credit Score Ranges

When you are trying to determine the health of your credit, knowing where your credit score falls within the scoring range makes a huge difference. For instance, a score of 700 on the FICO® scoring range indicates “good credit” and would make you eligible for a wide range of loan offers. More than 90% of top lenders use FICO® Scores, making it a relatively precise reflection of your creditworthiness.

So, here are the most critical credit score ranges lenders use:

  • FICO® Auto Score Range: This is a special variation designed for the auto financing industry. It is customized to predict the risk of default on car payments, and the range is 250 to 900, with higher figures indicating lower risk levels.
  • FICO® Bankcard Score Range: This industry-specific variation is customized for credit card issuers, and it’s fine-tuned to predict your risk of defaulting on credit card payments. The score range is also 250 to 900, with higher figures indicating lower risk.
  • FICO® Scores and Mortgages: When refinancing existing mortgages or offering new mortgage loans, most home mortgage lenders use specific variations of the standard FICO® Score. The score range is 300 to 850. The key scores are FICO® Score 2 (Experian data), FICO® Score 5 (Equifax data), and FICO® Score 4 (TransUnion data).

What Is Good Credit?

While credit scores help lenders and borrowers distinguish between bad credit and good credit, most consumers fall somewhere in the middle of that spectrum. Credit scores help lenders ascertain your individual level of risk and determine whether to approve your application. Generally, a credit score of 700 or above is considered good credit. But even if you’re not there yet, the good news is that you can enhance your credit score by making the right credit decisions. Good credit decisions today will lead to positive credit history in the future, bringing higher credit scores and improved borrowing opportunities.

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