Credit Scores

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Understanding Your Credit Score

Although a credit score is just three digits long, it may have a major influence on your financial situation. Your credit score ranges (most individuals have several) might influence your ability to qualify for a loan or obtain a credit card by indicating to potential lenders how likely you are to repay your loans. Understanding credit score ranges will assist you in determining whether or not your credit needs to be improved. Knowing what influences your credit ratings may also help you figure out how to improve them over time.

At O’Bryan Law Offices, we put our deep understanding of credit and bankruptcy to work for our clients. Whether they seek to file for bankruptcy to rearrange their finances, or if they just need debt counseling, we’re here to help. A dedicated Louisville bankruptcy attorney will guide you through every step of the process and ensure that you emerge in a better position. For more information, or to schedule your free consultation, please call 502-400-4020 today.

What Is a Credit Score?

A credit score is a number calculated using data from your credit reports. The majority of credit scores lie between 300 and 850, and where your score falls within this range indicates your assessed credit risk. In other words, it informs potential lenders about your likelihood of repaying a loan.

Your credit score ranges may influence whether or not you are approved for a mortgage, vehicle loan, personal loan, credit card, or other kind of credit. Your credit scores can also influence the loan rate and conditions you’re provided if you’re accepted.

How Credit Scores Are Calculated

The information in your credit reports is used to determine your credit score. Equifax, Experian, and TransUnion, the three major consumer credit agencies, each create a credit report based on information from lenders, credit card issuers, and other financial organizations.

Your credit reports provide details about your credit history and usage. Credit scoring algorithms like VantageScore and FICO are used by credit bureaus to convert all of this data into a score.

While each credit scoring model has its own methodology, they all take into account comparable credit data. Your credit scores are usually determined by criteria such as your payment history, the amount of credit you have accessible, and the sorts of debt you have. We’ll go over these in more depth later.

Personal information such as your race, gender, religion, marital status, or national origin cannot be used into credit ratings under federal law. However, it isn’t always true that the American financial system is unbiased, or that credit lending and credit rating systems don’t take prejudice into account.

Why Do I Have Different Credit Scores?

Having various credit ratings from multiple credit bureaus is entirely acceptable. Here are a few possible explanations for the disparity in your credit ratings.

  • Multiple credit scoring models: As previously stated, multiple credit scoring models may be used by the credit bureaus to generate your ratings. Because various scoring models use different ranges and component weightings, the results are frequently inconsistent.
  • Lenders using different types of credit scores for different types of loans: An auto lender, for example, may employ a credit score tailored to the auto sector. These ratings are very different from normal credit scores for consumers.
  • Lenders might report to only one or two credit bureaus: This implies that information that might boost or reduce your credit score could be absent from a credit reporting bureau.
  • Lenders report updates to credit bureaus at different times: If one credit agency has more up-to-date information than the other, your scores may differ.

You’ll notice slight swings and variances in your results as a byproduct of all of these factors. Instead of concentrating on these little changes, think of your credit scores as a meter of your overall credit health, and examine how you might improve your credit over time.

You can dispute mistakes on one or more of your credit reports with each credit agency if you believe your credit scores are different because of errors on one or more of your credit reports.

Credit Score Ranges

Knowing where your credit score sits in the FICO and VantageScore categories may help you figure out if you’ll be approved for a loan or credit card, as well as what type of rate you’ll get.

The VantageScore and FICO models differ in a few significant ways, including how they prioritize various criteria in establishing your ratings. Both have a score range of 300 to 850, but their definitions of poor, fair, good, and excellent differ. 

Credit Score Ranges

VantageScore

FICO

Excellent

781-850

800-850

Very Good

N/A

740-799

Good

661-780

670-739

Fair

601-660

580-669

Poor

500-600

<580

Very Poor

<500

What Is a Good Credit Score? Why Does It Matter?

So, what exactly constitutes a good credit score? A credit score of 670 or more is typically regarded as acceptable, however it varies per credit scoring methodology. A decent FICO score is between 670 and 739. A score of 661 to 780 is considered good by VantageScore.

A credit score in the good to excellent level can make all the difference. When assessing a loan or credit application, financial organizations evaluate a range of criteria, but better credit scores are typically associated with a higher probability of approval.

A high credit score might also lead to cheaper borrowing rates and more favorable terms. And if your credit score is great, you’ll have an even higher chance of getting the finest prices and conditions.

If you have poor or very poor credit, on the other hand, you may be accepted by some lenders, but your rates will almost certainly be considerably higher than if you had good credit. You may also be asked to put down a deposit or obtain a cosigner on a loan.

Factors That Affect Your Credit Score

Individual components differ depending on the credit-scoring methodology employed. However, your credit ratings are influenced by these variables in general.

  • Most important: (Payment history) A history of on-time payments is the most significant element in calculating your credit ratings for both the FICO and VantageScore scoring models. A lender or creditor uses your payment history to determine how likely you are to repay a debt.
  • Highly important: (Credit usage) Divide your overall credit card balances by your total credit card limits to get your credit usage. A greater credit usage rate may indicate to a lender that you have too much credit card debt and will likely be unable to repay your new loan or credit card amount. Keep your credit usage percentage below 30%, according to the Consumer Financial Protection Bureau.
  • Fairly important: (Length of credit history) A longer credit history might help you improve your credit ratings by demonstrating that you have more credit experience. Your credit history contains the number of credit accounts you have and when they were last utilized. Avoid canceling older accounts if at all possible, as this may diminish your credit history.
  • Fairly important: (Credit types and mix) A balanced combination of accounts, such as revolving lines of credit (credit cards) and installment loans (auto loans, school loans, personal loans, and mortgages), can help you improve your credit ratings. Lenders want to know that you can handle and repay various forms of credit.
  • Less important: (Recent credit) When you ask for credit or a loan, the financial institution will run a hard credit inquiry, which will appear on your credit reports. Opening several new accounts in a short period of time might indicate to a lender that you’re having financial difficulties.

Contact O’Bryan Law Offices for Credit Counseling

Getting the hang of managing your credit might seem like a daunting task at first, but it gets easier with time. With the help of a certified credit counselor in Kentucky, O’Bryan Law Offices will help you get your finances in order. We have extensive experience in this area of law, so you can rest assured that you’re in good hands. To schedule a free consultation with one of our attorneys, please call 502-400-4020 today.