A credit score is a numeric representation, based on the information in your credit reports, of how “risky” you are as a borrower. In other words, it tells lenders how likely you are to pay back the amount you take on as debt.
Credit scores are one piece of the puzzle that lenders look at to determine whether or not to lend to you. A good credit score can help you get access to a greater variety of loan offers. And if a lender approves your application for credit, a good or excellent credit score can help you qualify for lower interest rates and better terms.
In general, the higher your scores, the better your chances of getting approved for loans with more-favorable terms, including lower interest rates and fees. And this can mean significant savings over the life of the loan. Here’s how a good credit score can help you.
Credit Score Ranges
There are many different credit-scoring models, and each one uses a unique formula to calculate credit scores based on the information in your credit reports. Even the best-known credit-scoring companies, FICO and VantageScore, have multiple credit-scoring models that produce different scores. (Credit Karma offers free VantageScore 3.0 credit scores from Equifax and TransUnion.)
But while there are many different credit scores, the most common models all use a scale ranging from 300 to 850. Within this scale, there are some general credit score ranges that can help you interpret what your scores mean.
Here are the credit score ranges to be aware of and what they mean for you.
Poor Credit Scores:
300 to low-600’s
Having poor credit scores can make it difficult to get approved for a loan or unsecured credit card. But a poor credit score isn’t a financial dead end. Certain financial products, like secured credit cards, can help people who are working on building their credit. These products can be a helpful stepping-stone to accessing credit with better terms — if you use them carefully.
Be aware of potential fees and higher interest rates with credit-building products. And make sure the issuer or lender reports to the three major consumer credit bureaus so that important actions, like when you make on-time payments, can contribute to your scores.
Very Good and Excellent Credit Scores: Above mid-700’s
People with top credit scores are the most likely to be approved for loans and credit cards with low interest rates and good repayment terms. But having very good or excellent credit scores doesn’t mean you’re a shoo-in for every loan or credit card out there. A lender could deny an application for another reason, like a high debt-to-income ratio.
Regardless of your scores, it’s a good idea to keep an eye on your credit reports so that you’ll know what lenders will see once you apply. Credit Karma offers access to your free credit scores and free credit reports from Equifax and TransUnion, with weekly updates to help you stay on top of your credit.
Fair to Good Credit Scores: Low-600’s to mid-700’s
While you’re comparing your options, know that applying for a new loan or credit card may result in a hard inquiry, which can have a negative impact on your scores. Loans with preapproval or prequalification options can give you an idea of the terms you might qualify for ahead of time. Your Credit Karma Approval Odds may also be able to help you decide if a loan or a credit card is worth applying for or not.
What is the highest credit score you can get?
There are lots of different credit scores with different ranges out there. But for the major consumer credit scores, generally the highest credit score you can get is 850.
Keep in mind that perfect credit scores may not be necessary to qualify for great rates on loans and mortgages. Once you’re in the “very good to excellent” range, you likely won’t see much of a difference in terms of interest rate offers from, say, a 790 to an 840. Moving from a 650 to a 700 will likely have a more significant impact, which is why the general credit score ranges are important benchmarks to consider.
How Good Should My Credit Scores Be?
To Buy a House?
A 2019 Credit Karma report found that the average VantageScore 3.0 credit score that first-time homebuyers needed to buy a house in the U.S. was 684 — which is at the lower end of the “good” credit range. But credit requirements vary depending on your state (or even your city).
To Rent an Apartment?
Prospective landlords may run a credit check before you can sign a lease, but there’s no single credit score benchmark you need to hit to be able to rent an apartment. It can depend on the factors the landlord is looking for in a tenant, as well as where you’re looking to rent.
To Get Approved for a Credit Card?
It’s possible to get approved for a credit card with poor credit — or even no credit at all. Once you know what range your credit scores fall into, you can research cards that suit you and your goals.
If you have no credit, look for secured cards or cards for beginners (like student cards). If you have limited or poor credit, secured cards or cards advertised for building or rebuilding credit could be a helpful leg up. Once you’ve improved your credit, you may be able to qualify for more-enticing offers, such as rewards cards or balance transfer cards.
To Get Approved for a Car Loan?
You may be able to get approved for a car loan with a poor credit score, but it could be more difficult to find one to qualify for, and you could face high interest rates. If you’re still working on your credit and can’t wait to take out a car loan, consider asking a trusted family member or friend to act as a co-signer, or see if you can put down a larger down payment.
Good credit scores can mean better terms, but it’s still worth comparison shopping.
This article was written by Casey Hollis at Credit Karma. You can see the original article here.