An individual’s credit score is more than just a number – a credit score is an indicator of borrower reliability, along with one’s ability to manage finances and debt repayments. It is a numerical representation that is obtained through careful analysis of an individual’s credit files, in order to determine his/her creditworthiness. Often, we are compelled to take bad credit loans, which usually come with exorbitant interest rates and prospects of a debt trap.
In order to avoid opting for such loans, it is essential to work towards building a good credit score, that will inspire confidence in prospective lenders. Your credit score falls in between a range of 300 and 850, and you should know what your three-digit score reveals about you. Here’s an in-depth guide to help you grasp what your credit score says about your financial reliability:
1. Superprime: 781 – 850
In order to have a rough idea regarding this score, envision it as equivalent to an A or A+ on a report card. Achieving such a high score can prove to be challenging and time-consuming, however, this indicates that you have been extremely responsible with your credit and monthly bill payments. Even if you start out with a low credit score, you can achieve a superprime score through mindfulness and judicious financial handling.
Your score also reveals that you are a reliable borrower, hence you will be easily able to take loans from lenders or rent out an apartment. According to FICO, a Data Analytics company, the lowest mortgage rates tend to go to borrowers with credit scores between 760 and 850. This means that higher scores facilitate greater cost-effectiveness.
2. Prime: 661-780
If your credit score is in between this range, then it is a little short of being great or excellent. While this is a good credit range, it suggests that you have some room for improvement in terms of credit management. Since your payment history and debt-to-credit ratio are the biggest factors contributing to a stunted credit score, a figure in this range could signal that there were a few late payments in your recent history and/or you are carrying a tall balance on multiple credit cards. A score of 680 or 720 does not exempt one from credit qualification – however, it might cost you higher rates of interest on personal loan or any other loan.
3. Near Prime: 601 – 660
Your score suggests that you are facing consistent difficulties in credit management or that you are recovering from setbacks. This score range might be a result of the foreclosure of property or delinquency in bill payment. Although you might already be taking constructive steps towards rebuilding your credit score, it may take several months or years to do so. Meanwhile, from a lender-perspective, such a score might be concerning – you might qualify for a new credit, but it is likely to be accompanied with higher-than-average interest rates.
4. Subprime: 300 – 600
For those with a credit score less than 600, it is best to lay low and not apply for any new credit until your score builds up to at least another 50 points. Your score indicates that you are currently not in a financially viable situation and that you might be too big of a risk for banks and traditional lenders. In case you are recovering from bankruptcy or a foreclosure, it might take around seven to ten years before such negative records fall off your credit report.
In order to improve your credit score, you can take on a secured card, which is designed for individuals who do not qualify for standard credit cards yet. The activity on a secured card gets reported to credit card agencies, hence, it is important to use it wisely. With consistent and timely bill payments, your credit score will start improving. Eventually, you might be able to qualify for a traditional credit card, which will help you hone your credit management skills and boost your score. Patience, along with a judicious outlook, goes a long way when it comes to credit score improvement.
Keep these pointers in mind, and adjust according to your credit range. We wish that you achieve a credit score of your preference!