Credit scores significantly impact your financial and personal lives. When your finances and credit scores are in good working order, you can rest easier knowing that your financial future is more secure.
Credit scores range from approximately 300-850.
Here’s what they mean:
(Keep in mind that these are approximations)
- 300-550 Poor May not be approved for loan, check with lender
- 550-620 Subprime Higher interest rates
- 620-680 Fair Rates will vary here
- 680-740 Good Better rates
- Approx. 740 + Excellent Best rates
What It Means
Your credit score dictates if you are approved for a loan and the interest rate you will be paying on it. If you have a credit score in the 300-550 range, you would want to work on improving that score so that you don’t shell out more money over the life of a loan you may need. Even improving your score by a few points can save you a lot of money down the road.
You may still be able to apply for and get credit at the lower levels, but you’ll certainly pay more in terms of interest and/or down payments.
What Lenders See
Keep in mind that lenders not only look at your credit score when making a lending decision; they look at your current assets, debt-to-income ratio and your capacity to repay the obligation. Your credit score basically determines how trustworthy you are or not.
Fear & Loathing
Incidentally, many people resist checking their credit scores unless they absolutely have to. While some people have excellent scores and know how to keep them within an acceptable range, many of us have average or poor scores or worry that we will be denied if we apply for credit.
In this case, as it is with so many important things in life, avoiding the situation does not make it go away. Credit scores can improve with effort! Checking and understanding your credit score is the first step. Then making regular on-time payments for current loans makes for a good night’s sleep and clears the path for smoother major purchases and less financial bumps in your future.