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Credit Score Range

Your credit score is a measure of your creditability. If you are in the good credit score range, it means that you can easily avail a loan at a much better interest rate as compared to one who doesn't have a good credit score.
If you have ever applied for a loan, you have probably heard the words 'credit score' before. In 1958, the Fair Isaac Corporation (FICO) devised an ingenious way to counter the 'non-performing assets' problem faced by lenders, and came up with an idea that would forever change the face of lending. Credit scoring was born. While a good credit score did not necessarily guarantee absolute riddance from bad debts, it sure helped lenders identify the good from the bad and the ugly. There are several credit scoring agencies in the United States today, but most lenders still swear by the FICO range when deciding whether the loan applicant should be given the financing he wants.

What is a Credit Score?

A credit score is a measure of your creditability. It is calculated by a mathematical algorithm. The credit scoring agencies first decide which factors are to be taken into consideration while computing the creditworthiness of an individual. Mostly these factors include previous loan history, timeliness of payments, current financial position, types of credit that the individual is using, etc. The credit score of an individual is calculated on his/her performance on each of the parameters. The credit score has a lower limit of 300 and an upper limit of 850. So according to the FICO, the credit score of a person will always be between 300 and 850.

The 6 Levels of Credit

Now within the credit score ratings scale of FICO credit score ratings, we can create categories which are classified as good, average and bad credit score ranges.
  1. 800 - 850: A credit score of 800 to 850 is the best credit score possible and can be achieved only with a flawless credit history. If your credit score is within this range, you will never have any trouble getting loans sanctioned and, to top that, you will get the loans at lesser interest rates too!
  2. 720 - 799: A credit score in the range of 720 - 799 is also considered a very good credit score. A credit score above 680 is classified as prime credit and a person with a score of 720 - 799 is definitely head and shoulders above the rest. The people in this range will also be able to avail lower rates of interest.
  3. 680 - 719: A credit score of 680 - 719 is also a very good score (within the prime lending range) and availing a loan is not very difficult for these individuals. But people falling in this category might have to face a higher interest rate for receiving financing.
  4. 620 - 679: Individuals in this credit scoring range are said to be in the sub-prime lending category. It means that you are lower on the preference list of lenders as compared to the prime lending category. Individuals in this category might face trouble getting loans, especially in economically turbulent times and will have to pay a higher rate of interest.
  5. 580 - 619: A credit score range of 580 - 619 is an urgent wake up call for the individuals in this range to improve their credit before lenders totally shun them. Availing credit will be very tough for these individuals and the interest rates they have to pay will be quite high. The high interest rate concept is very simple. A person with low credibility is akin to a high-risk investment. So the bank would like to at least anticipate a higher return from an individual with a low credit score.
  6. Below 580: If you have a credit score below 580, chances are that even the most bothersome credit card companies will not pester you any more. If you are in this credit score range, there is an urgent need for credit repair and credit counseling, because without improving your credit, you will no longer be able to avail any debt.
One thing that you need to keep in mind is that interest rates and availability of financing also depend on the overall financial situation. For example, if the economy has decided to reduce lending, then the sub-prime category is going to take a hit. Contrast this with a policy where lending is encouraged to increase spending. In such times, the sub-prime category too can avail financing.
By Arjun Kulkarni
Bouquets and Brickbats
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