What Score is Excellent Credit?
What score is excellent credit? Well, when you apply for a loan, having a strong credit score might increase the likelihood that the lender will approve your application and provide you favorable rates and terms. However, it might be difficult to determine whether or not a certain credit score is considered to be good. Why? Because the bar for what is regarded as satisfactory can shift depending on the kind of loan you want and the particular lender that is looking over your application information. If you add in a variety of lenders, each of which uses a different credit scoring methodology, it’s possible that you’ll wind up with ratings that vary depending on the approach that was taken.
Table of contents
- What is a credit score?
- What is considered to be a good credit score?
- Factors impacting credit scores
- What Types of Information Are Ignored When Calculating Credit Scores
- What Score is Excellent Credit: Mortgages
- What Score is Excellent Credit: Car Loans
- What Score is Excellent Credit: Credit Cards
- The Ways In Which You Can Improve Your Credit Score
You are not informed by the lender exactly where they draw the line between a good credit score and a bad one when you apply for fresh credit. This is the case even if you ask them. This is due to the fact that financial institutions, in general, do not disclose their minimum credit score requirements to the general public. But FICO, the most well-known model for determining creditworthiness, provides borrowers with some useful information that can serve as a guidance. A number scale ranging from 300 to 850 points is used for the majority of FICO scores. According to this scale, a credit score that falls somewhere between 670 and 739 is regarded to be in the “good” range.
What is a credit score?
Before we can find out what score is excellent credit, we need to know what a credit score is. It is an assessment of a future debtor’s credit risk, estimating the latter’s ability to pay back the loan and providing an implied forecast of the possibility of default. This can be an individual, a firm, or even a government. It is a credit rating agency’s evaluation of the qualitative and quantitative information for the prospective debtor, which includes information provided by the prospective debtor and other non-public information gathered by the credit rating agency’s analysts.
It is the job of a credit bureau or consumer credit reporting agency to perform a numerical evaluation of an individual’s creditworthiness, which is a subset of credit rating.
What is considered to be a good credit score?
The FICO scoring algorithm places an outstanding credit score anywhere between 800 and 850 points; this range is considered to be the best. The Fair Isaac Corporation, better known as FICO, is responsible for operating one of the most widely used credit scoring systems in the business. According to myFICO.com, more than ninety percent of the leading lenders rely on FICO credit ratings to assist them in making lending choices.
VantageScore is yet another prevalent scoring model, and it comes in a variety of iterations, such as VantageScore 3.0 and VantageScore 4.0. The rating range is the aspect that most clearly differentiates FICO and VantageScore from one another. VantageScore assigns a number somewhere from 300 to 850, and the criteria that go into its computation are ranked on a scale ranging from “less influential” to “very influential.”
If your credit score is inside the level that is considered to be exceptional, then your credit is considered real good but not perfect. You could, of course, try to get your credit score to be perfect, but if you already have good credit or even excellent credit, you don’t have to put as much effort into establishing new credit as you would if you had fair or poor credit. You should instead concentrate on preserving your excellent credit score by continuing to engage in the responsible credit behaviors that assisted you in establishing that score in the first place. These behaviors include paying your bills on time and maintaining a low balance on your accounts.
Factors impacting credit scores
There are some important factors that can have an impact on your credit score, and these are usually broken down into the following five categories:
Your credit scores can benefit from a positive payment history, in which you have a record of making on-time payments on your credit accounts. However, failing to make payments on time, having an account turned over to collections, or declaring bankruptcy can all have a negative impact on your credit scores.
Credit utilization: the number of your accounts that have balances, the total amount that you owe, and the percentage of your available credit limit that is being used on revolving accounts are all relevant factors in this regard.
Credit history in terms of years: Within this section, you’ll find information regarding the average age of all of your credit accounts, as well as the ages of your oldest and newest accounts.
Different kinds of accounts are: This evaluates if you are managing both installment accounts (such as a vehicle loan, personal loan, or mortgage) and revolving accounts (such as a credit card or a line of credit). Another name for this is “credit mix” (such as credit cards and other types of credit lines). It is often beneficial to your ratings to demonstrate that you are able to safely manage both sorts of accounts.
Recent activity is taken into consideration, and this factor looks at whether or not you have lately applied for or opened new accounts.
What Types of Information Are Ignored When Calculating Credit Scores
If you’re wondering whether your race or age plays a part in deternmining credit. When determining credit ratings, neither the FICO® nor the VantageScore models take into account the following information:
Your sex, skin color, religion, national origin, or marital status, as well as your overall nationality. (Under United States law, credit scoring models are not allowed to take into account the following facts: receipt of any type of public assistance or the exercise of any consumer right guaranteed by the Consumer Credit Protection Act.)
Your salary, job, title, employer, start date, and length of work, as well as your employment history. (It is important to keep in the back of your mind, however, that lenders may take into consideration this information when determining whether or not to grant permission overall.)
Where you call home
Soft inquiries are typically conducted by third parties, such as organizations making promotional offers of credit or your lender doing periodic evaluations of your current credit accounts. Hard inquiries, on the other hand, are initiated by you. When you check your own credit report or make use of credit monitoring services offered by organizations such as Experian, they are both examples of soft inquiries. Your credit scores will not be affected in any way by these inquiries.
What Score is Excellent Credit: Mortgages
It is arguable that your credit score is more important when applying for a mortgage than it is when applying for any other kind of personal financing. When applying for a mortgage, having a strong credit score can help you save hundreds of dollars each month on interest payments.
As an illustration, let’s say you have a FICO credit score of approximately 640 when you apply for a mortgage for $350,000. According to the findings of the FICO Loan Savings Calculator, your annual percentage rate (APR) on a 30-year loan with a fixed interest rate would be around 3.957 percent in June of 2020. Your interest costs would amount to $248,424 over the course of the loan’s lifetime, and your monthly payment would be $1,662.
Now, let’s say that you put in the effort to raise your FICO score to 680. Because of your superior score, you may be eligible for an APR that is 3.313 percent lower than the standard rate. If you were to take advantage of the lower rate, your mortgage payment for the identical home would be $1,535. Over the course of your 30-year mortgage loan term, you would be responsible for paying an interest payment of $202,726. If you were able to raise your credit score from average to good, you would be eligible for the following savings:
$127 a month for it
1,524 dollars every year
$45,698 for the course of the loan’s lifetime.
If you have a credit score of 760 or better, you should be able to qualify for the mortgage rates that are being offered by the lenders offering the best deals. Of course, having a credit score that’s worthy of bragging about isn’t enough to earn you a terrific rate on your mortgage. When you apply for a mortgage loan, however, the three-digit numbers that are sold alongside your credit reports are a significant aspect that mortgage lenders take into consideration.
What Score is Excellent Credit: Car Loans
Typically in America, an adult consumer usually spends the most money on a home mortgage, then on a vehicle. Vehicles are also frequently among the most expensive purchases. In May of 2020, the average price for the purchase of a light vehicle in the United States was reported to be $38,940 by the Kelley Blue Book, an independent firm that provides automotive valuation services.
When it comes to financing large purchases such as a car, having good credit might make the difference between spending more money and saving thousands of dollars.
For instance, if a person has a FICO score of 620 and is interested in purchasing a new vehicle, the auto dealer may tell them that they are eligible for a 60-month loan for $38,000 based on their score.
The FICO Loan Savings Calculator estimates that the annual percentage rate (APR) on your loan in June 2020 will be 16.714 percent, and the amount that you will pay each month will be $939. You would be responsible for an additional interest payment of $18,315 throughout the course of the loan’s lifetime.
Even if you are successful in getting approved for a car loan, a payment of $942 per month is a big amount. For example, if you pushed the stop button and made the conscious decision to focus on bringing upward your credit score before applying for a loan. You find out that you have improved your credit score to 670 when you request for credit again in the future. This is the minimum threshold that the majority of credit scoring models regard to be a “excellent” credit score.
The current estimations provided by the FICO Loan Calculator place your potential annual percentage rate (APR) somewhere around 7.89 percent if your credit score is 670. At that interest rate, the monthly payment that you would make on the same auto loan for $38,000 would be $768. Over the course of the loan life, you would be responsible for a total interest payment of $8,106.
If you were able to raise your credit score from bad to good, you would be able to save money on the following:
$171 every single month
$2,052 on an annual basis
a total of $10,208 for the course of the loan’s lifetime
Your ability to save money could be increased by having a higher credit score. If your credit score is 720 or above, you should be able to qualify for the finest financing options from an auto lender; a score of 800 demonstrates an even better level of reliability.
What Score is Excellent Credit: Credit Cards
Before granting you a new credit card, issuers of credit cards will check your credit score, just like other types of lenders do, to evaluate the level of risk associated with conducting business with you. In order to be approved for a premium travel rewards credit card, you will likely need credit scores that are at the very least acceptable and possibly even great. If you have a decent credit score, you may be able to get approved for different sorts of credit cards, including ones that have introductory APR offers of 0%.
Your credit score is not just related to whether or not you are approved for a credit card; it also has a substantial bearing on the annual percentage rate (APR) and other parameters of your account. Not only do credit card issuers rely on credit scores to assist them decide whether or not to approve applications, but they also use scores to determine the price for accounts that are approved after the applications have been approved.
Consider, for instance, this ranking of the best credit cards. You’ll find that every credit card offer comes with a variety of annual percentage rates rather than a precise rate to choose from. An APR that ranges from 13.49 percent to 24.49 percent could be advertised by a card issuer. Because the card issuer will determine the ultimate rate that it offers you based on the state of your credit, this range is necessary in order to account for this fact.
It can be difficult to determine an exact number that would satisfy an issuer of credit cards as a satisfactory score for two reasons:
Credit card providers are responsible for determining their own minimum credit score requirements. There is a possibility that a number that enables you to qualify for the finest conditions offered from one card issuer will not be high enough to enable you to qualify for the same treatment from another bank.
Different credit scoring formulas are utilized by various issuers of credit cards. The FICO scoring methodology is utilized by some credit card issuers, and its points can range anywhere from 250 to 900. Others may opt to make use of credit scores ranging from 300 to 850 on the basis of their FICO or VantageScore. In conclusion, in order to analyze new account applications, certain banks that issue credit cards make use of bespoke, in-house credit scoring algorithms.
Remember that whatever credit score that a lender determines for you is going to be based on the same data, which is going to be the information that is contained on your credit report. If you make it a priority to keep your credit reports honest and correct, your credit scores should be in good shape regardless of who analyzes them or what scoring algorithm the company employs.
The Ways In Which You Can Improve Your Credit Score
It is in your best interest to work on raising your credit score over time if you now have a score that is ordinary or lower. The following are some options available to you:
Always be prompt in making your monthly bill payments. The single most important component in determining your credit score is whether or not you make your payments on time.
Bring down the percentage of available credit. The percentage of your credit limit that is actually used is the metric that is used to measure credit use. For instance, if you had a credit limit of $10,000 and your total debt is $5,000, you are using up fifty percent of the credit that is available to you. Try to keep your overall and individual credit card balances to 30 percent or less if at all possible.
Examine the report of your credit score. Through the website annualcreditreport.com, you are permitted one free credit report check each year from each of the three major credit reporting agencies. (It is important to take note that you can continue to check it every week for free until April 2021.) The process of reviewing your credit reports can assist you in locating any errors that may be having a bad effect on your credit score, allowing you to take the necessary actions to rectify the situation.
Think about getting a secured card. If you have no credit history or weak credit, using a secured credit card may be a smart method to start building your credit history. If you want the best possibility of having your responsible payment behavior help improve your credit status, choose a secured card that reports to all three of the major credit bureaus.
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