By Walter Laskos
In today’s commercial world, your ability to buy a home or use credit cards is contingent on the quality of your credit worthiness. The process begins with the lending institution where you might be applying for the credit card or loan to purchase a home or auto, and it entails looking up your credit score.
A credit score is a number that lenders use to assess the risk of lending you money. The score is one way banks, credit card companies and other institutions assess the likelihood that you can or will be able to pay off any debts you accumulate. A higher credit score indicates that your current financial circumstances and your historical behavior demonstrate a willingness and ability to pay off any loans you may have been approved to receive.
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In the United States the credit scoring system you will hear about most is the FICO score, a score used by the major credit agencies to rate your creditworthiness. Your FICO score will be somewhere between 300 and 850 with a higher score indicating a more favorable credit status. When it comes to your credit, lenders may sometimes refer to it in terms of Credit Level or Credit Quality such as Poor, Fair/Average, Good or Excellent with each category referring to a range of FICO scores.
Poor credit is considered anyone with a FICO score under 630
Average or Fair credit rating will be between 630 and 690
Good Credit is between 690 and 720
Excellent credit is anything above 720
Credit scores will have an impact on you in two ways: Whether you can get approved for a financial product in the first place, and what interest rates you may have to pay if you are approved. The higher your FICO score the more likely you are to get approved for a credit card or loan, and will usually reduce the interest rate associated with that particular loan or card. Lower scores may disqualify you for a product or service completely and can raise your interest rates significantly.
In this month’s edition of Better Banking, we discuss credit scores in depth; how they work and how you can influence and improve your own credit score. The time to take action is now. By understanding your credit score and how it works and impacts your financial success, you’ll find yourself better positioned as a loan and credit card applicant.