July 21st 2023.
What are Credit Scores?
Credit scores are a rating that lenders use to quickly determine a potential borrower’s creditworthiness. It measures the likelihood an individual will repay a loan on time and in full.
Credit scores are typically a three-digit number and usually range from 300-850. The higher the credit score, the more creditworthy you are. High credit scores give you access to more loan options, higher credit limits, lower interest rates, and more favorable credit terms. On the other hand, lower credit scores mean fewer financing options, higher interest rates, and less favorable terms.
Lenders and financial services companies rely on credit scores to make billions of dollars in credit decisions every day. Your credit score is a major factor used in personal and business loans. Examples of personal financing products include installment loans, revolving credit accounts, consumer credit accounts, and mortgages. Business loan products include business term loans, lines of credit, equipment financing, and more.
Credit bureaus provide credit reports and use the information to calculate your credit score. The three major credit bureaus are Experian, Equifax, and TransUnion.
What are Credit Score Ranges?
Credit score ranges are a scale used to determine creditworthiness depending on where your score falls. Ranges vary by credit score type.
The most widely used credit score is the FICO® score. It ranges from 300-850. In 2022, the average FICO score in the US was 714. The breakdown of the FICO score range is as follows: 800-850 (Excellent), 740-799 (Very Good), 670-739 (Good), 580-669 (Fair), and 300-579 (Poor).
The three major credit bureaus also developed the VantageScore® in 2006 to standardize consumer credit scores. VantageScores use a range of 300-850, the same as FICO scores. The average VantageScore was 695 in 2022. The breakdown of VantageScore ranges is as follows: 781-850 (Excellent), 661-780 (Good), 601-600 (Fair), 500-600 (Poor), and 300-499 (Very Poor).
Business Credit Score Ranges
As a small business owner, you also must track your business credit scores. Business credit scores work differently than consumer credit scores, so business credit score ranges are more complicated.
How are Credit Scores determined?
Your credit score is based on the information in your credit report, which includes your open accounts, loan history, credit usage, payment history, and more. Factors that comprise a percentage of your credit score include payment history (35%), credit utilization (30%), credit history (15%), credit mix (10%), and new credit (10%).
Payment history measures your track record of paying bills. It accounts for any late payments and how late they were. On-time payments will gradually raise your score over time. Credit utilization is your current debt burden and uses your credit utilization rate, the percentage of your existing debt over your available credit. Account history refers to how long your accounts have been active. Credit mix is successfully managing different types of credit. And new credit is applying to open a new credit account.
What’s a Good Credit Score Range?
There is no definitive cutoff between a good and bad credit score. That’s why credit score ranges help assess if your score is good or bad. Generally, most FICO scores over 670 are considered “good.” However, some lenders are more stringent than others and might only consider scores over 700 to be a good credit range.
To help put it into perspective, most mortgage lenders require a minimum credit score of 620 for a conventional mortgage loan. Some require a minimum of 670. Your credit score will also determine your interest rate. You’ll need a credit score over 740 for the lowest available mortgage rates.
What are Credit Scores?
Credit scores are a rating used by lenders to determine an individual’s creditworthiness quickly. A higher credit score indicates a higher likelihood of repaying a loan on time and in full. Most credit scores are a three-digit number, typically ranging from 300-850. High credit scores open the door to more loan options, higher credit limits, lower interest rates, and more favorable credit terms.
Lenders and financial services companies use credit scores to make billions of dollars in credit decisions every day. Your credit score is a major factor in personal and business loan products, such as installment loans, revolving credit accounts, consumer credit accounts, mortgages, business term loans, lines of credit, and equipment financing.
Credit bureaus provide credit reports and calculate your credit score from the information in your credit report. The three major credit bureaus are Experian, Equifax, and TransUnion.
What are Credit Score Ranges?
Credit score ranges are a scale used to determine creditworthiness depending on where your score falls. Ranges vary by credit score type. The most widely used credit score is the FICO® score. FICO scores range from 300-850, and the average FICO score in the US was 714 in 2022.
The breakdown of the FICO score range is as follows:
• Excellent: 800-850.
• Very good: 740-799.
• Good: 670-739.
• Fair: 580-669.
• Poor: 300-579.
The VantageScore® credit score range also uses a range of 300 to 850. The average VantageScore was 695 in 2022, with the breakdown of VantageScore ranges as follows:
• Excellent: 781-850.
• Good: 661-780.
• Fair: 601-600.
• Poor: 500-600.
• Very poor: 300-499.
Business Credit Score Ranges
As a small business owner, you must also track your business credit scores. However, business credit scores work differently than consumer credit scores. As a result, business credit score ranges are more complicated. To learn more, check out our essential guide on business credit scores.
How are Credit Scores determined?
Your credit score is based on the information in your credit report. While FICO and VantageScore provide different credit scores, they use many of the same factors when calculating scores. However, they weigh them differently. The five categories that comprise a FICO score are payment history (35%), credit utilization (30%), credit history (15%), credit mix (10%), and new credit (10%). Payment history measures your track record of paying bills, credit utilization measures your current debt burden, credit history refers to how long your accounts have been active, credit mix is successfully managing different types of credit, and new credit is applying for new accounts.
Credit Report Information That Doesn’t Impact Credit Scores
Credit reports also include personal identification information and demographic information. This information doesn’t factor into credit score calculations. It primarily verifies your identity and tracks credit score information by demographics. Information that doesn’t impact your credit score includes the following: race, color, religion, national origin, sex, marital status, age, employment, where you live or previous addresses, and soft credit inquiries.
What’s a Good Credit Score Range?
There is no definitive cutoff between a good and bad credit score, which is why credit score ranges help assess if your score is good or bad. Generally, most FICO scores over 670 are considered “good.” However, some lenders are more stringent than others and might only consider scores over 700 to be a good credit range. The highest credit score you can get is 850, but there’s not much difference between perfect and excellent scores. People with excellent credit generally have access to the same loan or credit card options.
To help put it into perspective, most mortgage lenders require a minimum credit score of 620 for a conventional mortgage loan. Some require a minimum of 670. Your credit score will also determine your interest rate. You’ll need a credit score over 740 for the lowest available mortgage rates.
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