Credit Scores and Interest Rates
Your credit score is a measurement of financial reliability; it predicts how likely you are to pay your debts.
The impacts of the often-mysterious credit score reach far beyond the credit limit on the plastic card in your wallet.
Your credit rating is also a large factor in approval and rates for lending companies and even utility companies, phone companies, or landlords.
Credit scores predict the likelihood of on-time, in-full payments over the next 24 months, which is exactly what lenders need to know today.
There are several different models, algorithms, and credit rating bureaus, so you actually have more than just one credit score and they're probably not the same.
The algorithms and exact value metrics used by each bureau are kept secret, so knowing how to fix your credit score can feel like an elusive quest.
FICO is the biggest name in credit reporting and more than 90% of financial institutions in the US use the FICO score for lending decisions.
We also use the FICO scoring ranges in the loan calculators
on this website to help estimate loan interest rates.
Interpreting your credit score is fairly easy.
FICO credit scores range from 300 to 850.
The higher your credit score number, the better!
High scores earn the easiest approval processes and the best interest rates.
Credit scores essentially fall into five categories:
This nearly-perfect score range is considered exceptional. Only about 20% of consumers achieve an 800+ score, putting them well above the average consumer.
Competitive interest rates and higher limits are accessible to this credit score tier and above. Consumers have a very good chance of credit approval.
Credit scores that fall within this median range are generally considered acceptable for borrowers, but consumers will most likely receive average rates.
Falling below the median score categorizes consumers as "sub-prime" lending candidates. It may be difficult to get credit with some lenders or higher interest rates may be charged.
Consumers in this range are considered at high risk for delinquency. Credit applications are frequently rejected or may require a fee and deposit to open accounts and lines of credit with the highest interest rates.
There are many factors that affect your credit score, including payment history, amounts owed, length of credit history, types of credit,
and new credit inquiries or account openings. FICO reports that up to 35% of your score is influenced by payment history,
including your timeliness of payments.
It's important to note that borrowers with no credit history are given the benefit of the doubt by many lenders.
You may be given smaller limits at average interest rates until you build up a credit history.
Our loan payment calculator
and loan affordability calculator
assume average interest rates for those with no credit, similar to what a consumer with a 700 credit score might get.
Credit scores are not at all affected by personal or demographic information.
Many consumers are surprised to learn that their income, marital status, and even child support payments have no effect on their credit score.
Scoring a big pay raise won't make your credit score budge a bit!
Improving your credit score takes time because it's a 24-month prediction of your financial reliability.
Weighty missteps like foreclosures, delinquencies, and bankruptcies can negatively affect your credit for years, even with immediate corrective action.
Most of the suggestions and tactics are more preventative than reactive: