Everyone uses credit but doesn’t always understand what their scores mean. Sure they might know that the best credit score is in the 800s and that the worst is a score of 300 and that those scores can significantly impact interests rates but nothing other than that. Well, this breakdown is here to help fill in the informational gaps you might have surrounding credit scores.
What is a credit score?
A credit score is a three-digit number that can fall in a range anywhere between 300-850. Wherever you fall in this range is how lenders assess the risk of lending you money, based on your credit repayment history.
What affects a credit score?
Now that you know what a credit score is let us get into what affects it. There are two main components that greatly affect your credit score and they are payment history and credit utilization. First let us discuss payment history, which is the key factor in raising your credit score. Having constant recurring payments when it comes to your credit card is crucial if you want to increase your credit score. Credit lenders want to know they are lending money to financially responsible individuals who have a steady repayment history so be sure to make consistent payments on all your credit bills. Similarly, it is important to use but not exceed your credit limit since banks look at your credit utilization when putting together their credit reports. It is even recommended by Bankrate finance experts that a person should only use around 30% of their available credit in order to keep the percentage of their credit use and their total balance in the lower range.
Credit Score breakdown
When it comes to credit scores there are five main categories that everyone is familiar with the bad (300-579), the average (580-669), the good (670), the great (700-779), and the excellent (780-850). Let us explore what each of these number ranges mean within these categories.
- 300-579 is considered to be the bad range by credit bureaus since typically people within that category tend to overspend and misuse their credit cards which is why anyone who ends up in this category is flagged by credit bureaus as being a risk to lend money to. Many people within this category ended up here because they either failed to pay their credit card bills on time or at all which resulted in their credit scores dropping significantly.
- 580-669 is the average range and where most new credit users fall if they pay their credit bills regularly the first few months. Being in this category is not necessarily bad but can be improved in order to receive better benefits from your card issuer. This range indicates to bureaus that you are new to credit building. If you fall within this range and make constant payments you will most likely see an increase in your credit line and potential pre-approved credit card offers as well as balance transfer deals by the financial institution that gave you your current line of credit.
- 670-739 is a good range in the eyes of the credit bureaus as it shows you have great financial responsibility. The benefits you qualify for here are moderate interest rates, approval on loan applications and a high chance of being approved when opening new lines of credit.
- 740-779 which is a great range to be in, as this category will be when you start to see more high level benefits such as lower interest rates when applying for new credit cards, loan deals, or qualify for zero percent APR when buying a new car.
- 780-850 is considered the excellent score range since it reflects you as being an extremely favorable person to lend money to. With this credit score, you can easily pass any credit check, get favorable credit deals on any vehicle, be approved for any apartment, and all the benefits previously mentioned in the other credit score categories.
Now that you better understand the basics of credit scores it will be easier to maintain and increase your own credit score over time.
Company Bio
Extra was founded by Maximilian Hellerstein as a financial services company aimed at allowing people access to a line of credit. Extra can connect to over 10,000+ banks in the U.S. by using Plaid, to ensure that your banking information is safe and will never be stored. Anyone 18+ can apply since there is no credit check, and instead only a monthly payment fee that starts at just $7/month.
