For the vast majority of adults, the credit score is a key element in their quality of life. This 3-digit number can determine a great many things, including housing, transportation, and employment. And while most people have a rudimentary understanding of what a “good” credit score would be, they don’t understand all the factors that go into calculating that score. Your credit score is determined by several things, which include:

• Number of accounts you have
• Your payment history
• The overall value of your debts
• Derogatory items like bankruptcy filings, accounts in collection, etc.

In essence, your credit score is a numerical representation of risk- the risk that a lender would take by lending you money. There are a couple of main organizations that oversee credit scores, which you may be familiar with. The FICO score, from the Fair Isaac Corporation, is a common one, and there is also the VantageScore, which was developed in a partnership between the three main credit reporting agencies: Experian, Transunion, and Equifax. Both of these systems use numbers between 300-850, to illustrate a consumer’s responsibility with credit.

So, let’s explore the main credit score categories:

800-850: Exceptional credit

For those who have been extremely consistent with their use of credit, always pay on time, and maintain low credit balances, a score of over 800 may be awarded. This indicates the lowest risk to a lender, and people with an exceptional credit score often have access to more credit and lower interest rates.

740-799: Very good credit

A score in this range indicates a consumer who is responsible with their credit, generally making all of their payments for credit cards, mortgages, car loans, and rentals on time. Carrying low balances on your credit cards will improve your likelihood of being in this score category.

670-739: Good credit

The national average FICO score is 695, and this category represents those who are around or slightly above this average. People with good credit may have access to many lending options, but may not get the best interest rates or largest loans.

580-669: Fair credit

Scores in this range are typically given to consumers with some derogatory marks on their records, but nothing too major. Most of the time, consumers with fair credit can obtain some lending, but often with high interest rates.

Under 580: Poor credit

Someone with a credit score between 300-580 has significant damage to their credit history, perhaps from multiple collections, defaulting on loans, and/or bankruptcy filings. They aren’t likely to be offered any opportunities for credit.

Want to learn more about credit scores, and how to protect yours? Reach out to us at Martin & Bontrager today and request your free consultation.