The Credit Score Rating Scale and Your Borrowing Power

If you decide to look at your credit score, you might find all the numbers confusing. All numbers have their own purpose and you need to know how the credit score rating scale works so you can understand exactly what your credit score means to you and your ability to get loans and lines of credit.

There are 3 major credit reporting agency. You are allowed to view one report from each for free once each year. After the free report, there is a charge for each view. The credit score might be different for each agency because they do not receive the exact same information. A business may choose to report your credit information to only one or two of the agencies. How the agency uses this information can varies slightly also. However, each agency uses the same formula to determine your score.

Fair Isaac and Company (FICO) developed the software that each agency uses. You might find your credit score is called the FICO score. Your credit score is mainly determined by how long your credit history is, your past payment history, how much debt you have, and when payments are made.

You will be given a lower credit score if you have a large amount of debt and a short credit history. This happens even if you have not missed any payments. If you have submitted numerous credit applications recently, your score will be lowered. The agencies see this as a sign you are getting into financial trouble. Also, if you have debt at high interest rates your score is lowered as this happens when you live score miss a credit card payment or go over your credit limit.

Here’s a breakdown of what the credit score rating scale means for your ability to get credit:

If your score is 700 or higher, you have an excellent credit score. You most likely will have no trouble obtaining credit at a low interest rate with favorable terms.

If your score is between 670 and 699, then you have average credit. While you won’t have any difficulty getting a loan, improvement in your scores can save you money.

If your score is 585 to 669, you have room for improvement. You might have trouble obtaining credit and will need some collateral to obtain a loan. Because the score indicates you are a greater risk, the interest rate will be higher and the terms less favorable.

A score between 450 and 584 is very much in trouble. You probably will not be able to get credit or a loan. There are resources to improve your credit score. Try a credit counseling service. Many are free to use. If there is a charge, make sure it a reputable service. You may be able to find information on the service at your Better Business Bureau. These agencies will analyze your credit score and advise you on how to make positive changes.

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