Different values in the Credit Score Range

The highest credit score available is classed as “Excellent” and this refers to a score of 800 and higher. To achieve an excellent score, you must be extremely disciplined with your finances, making sure you pay all due loan and credit card payments in full and ahead of time. Generally speaking, you must have used a significant amount of credit (i.e., more than just a single credit card). If you are lucky enough to have an excellent score, you will never be turned down for credit by any lender or financial institution and you will be awarded the lowest interest rates on the market.

The next highest credit score is “Very good” and this refers to a score between 700 and 799. It is estimated that around 25% of Americans fall within this range, which is a good place to be. With a very good score you can be confident of being approved for both secured and unsecured loans at good (low) interest rates.

A score between 680 and 699 is a “good” score and again there should be no problem being approved for credit, but interest rates will be significantly higher than those offered to consumers with very good and excellent scores. If getting a loan is not a matter of urgency, you may want to consider putting it off to give yourself time to increase your score to around 720. You would then be able to take advantage of lower interest rates, reducing the total sum of money you have to pay back. Most people in the United States fall into the “good” category.

Lower Credit Score Range

An “Ok” or “Fair” credit score is classed as 620 to 679. Whether you are approved for credit or not comes down to each individual lender; they all have different criteria. If you are approved, your loan will be subject to high interest rates and other terms and conditions. Again, it is worth considering whether you want to take time to improve your score in order to receive lower interest rates.

A “Poor” credit score is 580 to 619 and you should be prepared to agree to some unattractive terms and very high rates of interest. Be aware that this means you will have to pay back a lot more — over a longer period of time — than the original loan amount. A “Bad” credit score is 500 to 579 and while you may still be able to get a loan, you should carefully weigh up the pros and cons before signing an agreement. If you default on payments, you will quickly make your situation even worse and may even end up bankrupt. A “Very bad” credit score (499 or lower) means that you are unlikely to be approved for credit and you should seek immediate professional help. If your score is poor, bad or very bad, you should take action to repair past mistakes and start the process of rebuilding your credit rating.

In our Stress Test analysis, we assigned an average underwriting rating for most of Comerica’s loans and securities, as credit quality has held up well relative to peers. We assigned a below-average rating to its construction and commercial real estate loan portfolios, primarily to reflect its California and Michigan exposure. Comerica received a good Stress Test score despite burning capital under our assumptions, as its capital raise boosted its starting position. Comerica also achieved a good Solvency Score thanks to its strong credit quality, improved capital position, and earnings power. We awarded the company a good Business Risk score because of its deposit-funded balance sheet, size, business line, and geographic diversification, in addition to its narrow economic moat. These factors led to a rating of BBB+.

Source: morningstar.ca

“It can affect your borrowing costs, the amount you’ll pay to finance cars or homes or, certainly credit card rates,“ notes Morningstar Financial’s Christine Benz.

A bad credit score can even affect your ability to get a job.

“Some employers actually check up on credit ratings when they’re hiring,“ Benz says.  “So, it can actually affect your future employment history as well.“
Personal finance advisors are busy these days doling out advice on how to raise your credit rating and shed the reputation of a being credit risk.

Credit cards are usually where they begin, because that’s usually where poor credit is born.

“If you have a credit card with a $10,000 credit limit and you have $5,000 in debt on there, that’s not going to look good,“ says personal finance consultant Bob Sullivan.

Advisors say getting credit card debt below 20-percent of maximum limit should be a priority.

“Do that to all your credit cards, march through them one at a time and that’s the best way for you to quickly raise your credit score,“ advises Sullivan.

AnnualCreditReport.com is one place to get a history of your credit, but you’ll have to pay to see your credit rating.

Contrary to what you see on some tv commercials there is no way to get your credit score free of charge.

Source: counton2.com

One other reason why such procedures are important is that it increases the efficiency of the system in the sense that the creditor is ensured and on the safe side. This also reduced the bad loan ratio of the creditor company and builds trust among the other institutions of the country thereby helps reduce the interest rates as a whole.

One other advantage is to the end user. Nowadays in many countries, consumers or people seeking loans can easily get their answer simply by sending their SSN (Social Security Numbers) or Citizenship IDs as a Text Message to the numbers designated by banks or credit institutions. Getting their answers as positive or negative, consumers then decide on other options. Credit scoring procedures has advantages, since this method provides consumers the means to compare different quotes given by  different institutions.

Don’t be desperate; it’s not the end of the world. It’s but natural to incur expenses as you go on with your daily life. Most especially now that almost every price of an item you need is soaring high. This is one reason why people find loans, credit cards, and other credit transactions more attractive.

Transactions involving credit is not that easy to apply for, you will need to have a good credit rating based on your credit report. Your credit report holds your credit score, or formally known as the FICO score.

The FICO score of each person applying for credit is very important. This is usually the deciding factor for any company to approve your application for credit. This will determine whether you’re eligible or not.

You should not disregard your FICO score. This means that from the very start, you should have handled all your credit transactions in a good manner and pays your bill on time. If you’ve been living your life like this, then you can expect a high FICO score. Having a high credit score means that you have great chances in getting secured loans, credit cards, and the like.

A high FICO score indicates that you’re a low risk for creditors, which means that once they extend you a loan (or any credit transaction), you can pay off your dues on time.

FICO scores have different ranges. If you’ve scored 500-559, it means that you should start improving your score. 560-619 scores have great troubles in obtaining credit, and for you to have a decent score, you must get a score of 675-699. Scores from 700-719 can expect a favorable response when it comes to financing terms. For people having FICO scores from 720-850, a big round of applause for you, because you’ve attained the best score of all; you will certainly have no trouble in applying for any credit term.

Aside from the different score-range, the FICO score is divided into five categories: the payment history, the credit history’s length, amounts owned, new credit, and the type of credit that you have used. These categories have a direct relation to your credit scores.

Your credit report will contain information such as retail accounts, credit cards, mortgages, installment loans, unpaid accounts, bankruptcy, and other pertinent information regarding your history (on credit). You can’t lie because the records are pieces of evidence which proves your eligibility.

However, there are also times when some information contained in your credit report are not that accurate, so you need to check with the bureau along with your supporting papers at least once every year to have your records updated.

You are free to visit the bureau. In fact, three known bureaus gather credit reports. They are Experian, Equifax, and TransUnion.

The FICO score is your credit score, and remember, you must get a high score to have any application on your favor. One of the best ways to cope with your expenditures is through credit, so it is a must that you get a high FICO score. Be responsible with your finances.

This seems like a logical thing to do, right? I mean, lower interest rates on your credit accounts equals more money in your pocket, true? Yes, transferring your credit card balance from a high interest credit account to a lower one is an excellent way to save money on interest, especially if you carry a lot of debt on your credit card(s).

But how does this affect your credit rating and credit score? The answer to that question really depends on your situation, and how you go about it.

A closer look

Lets say you have $5,000 in debt on a credit card account from “ABC Credit Services”, which has a total credit line of $10,000. For this example, lets just say this is currently your only open credit card account. Since your debt takes up half of your total credit line, this would put your percentage of debt compared to your credit line, for this account, at 50%. We’ll call this your “debt percentage”.

You’re making payments to ABC with no problems and you seem happy with the account and the interest rate. That is, until one day you check your mail, and there it is, a credit card offer from “XYZ Credit Services” with a fixed interest rate set at half of what you’re paying now with ABC! Suddenly dollar signs start popping up in your head, and you start trying to figure out how much money you could save by transferring your $5,000 balance to XYZ. You then decide you’re going to apply for the account at XYZ. Your credit is good right? No problem! You receive the card in a week or so, and go ahead with the balance transfer.
So how does this affect my credit score?

How this balance transfer affects your credit rating and credit score really depends on what you do from this point on, and also what your credit line is on your new card from “XYZ”. If your credit line on your new card is lower than that of the original “ABC” credit account, then your “debt percentage” will be higher, which generally will lower your credit score. This would be true if you closed the original account at ABC, and kept your new account as your only open credit card account.

If you’ve had your “ABC” credit card for a while (maybe 2 years or more), and you have a good payment history with them, then it will most likely be in your best interest to keep that account open, even if you don’t use it. Especially if your credit line with your new lower interest card is below $10,000. Usually for the sake of your credit score, you don’t want to increase your “debt percentage”, you want to decrease it.

For example, if you keep both accounts open, you will have a total credit line of $20,000. With your $5,000 in debt on your new card, and your original account at ABC having no balance, your debt percentage would only be 25%, which is a good percentage and your credit score will reflect that.

Now reverse that and say that you closed your credit account from “ABC”, given that your credit line at “XYZ” stays the same, you would have a debt percentage of 50%, which is what you started out with in the beginning. Add to that a newly acquired credit card with little or no payment history on it, and you’re credit score would almost surely decrease, at least until you establish a longer payment history on your new account.

So for this example, it would probably be best to keep both accounts open. Your lower debt percentage could possibly offset the hit your score took from obtaining your new credit card. And looking to the future, it should look better on your credit report this way too.

Avoid increasing your debt percentage

When trying to keep your credit score as high as possible, try to avoid doing anything to increase your debt percentage. Even though the amount of debt you are carrying on your “revolving credit” is the same, it will always look better if you’re using 25% of your total credit, compared to using up 50% of it.
But don’t try too hard to decrease it either

Be sure not to take it too far by applying for more credit than you need, just because you think it will help your credit score by having an even lower debt percentage. Obtaining any new credit will generally bring down your credit score slightly, at least for a short period of time. Applying for credit too much and too often will almost always have a negative impact on your credit score, which is exactly what you don’t want. Your time would be better spent on trying to pay down this debt instead.
As with anything, being informed is the key

Balance transfers such as this can and will save you money on interest, if you do it right. Stay informed about how things like this affect your credit, and you should be just fine!