Knowing where your credit is on the credit score scale is important. Depending on your rating and rating, you may receive lower interest rates and be more likely to be approved for loans and credit cards. There are three credit reporting agencies – Experian, Equifax and Transunion. Each one has its own approach to determining ratings, but overall they provide the same results. In general, companies look at a credit report overall and across the credit score. This makes your credit rating more understandable.
Credit ratings and their meanings
Usually, lenders use a scorecard to determine where a credit rating is and what rates they may receive.
- Excellent (Scores 780+) – Individuals with a rate of 780 or higher will benefit from the best interest rates on the market. They will usually always be approved for a loan.
- Very good (scores 720-779) – This is considered almost perfect and individuals with a rate in this range will always enjoy some of the best rates available.
- Average (scores 680-719) – Although this is still a good range, individuals with this score will receive slightly higher interest rates than those with odds above them. According to Equifax, at the end of 2012, the average national credit score was 696.
- Bad (scores 580-679) – Scores in this range indicate that the person is high risk. It can be difficult to get loans and, if approved, they will pay a lot in terms of interest.
- Very low (scores of 579 or less) – Scores in this range are rarely approved for anything, but the credit can be repaired.
Factors Affecting a Credit Rating
Generally there are five factors that determine the calculation of a credit score, but three of them account for 81% of the overall total. These factors are:
Recent Credit (30%) – Indicates when the credit was verified and shows that the consumer has requested more credit. This indicates a risk for those who already have a large amount of debt.
Payment History (28%) – This is determined by the repayments they made to lenders or creditors. This therefore reflects the frequency of payments on their loans or bills on time.
Usage (23%) – This shows the amount of debt that the consumer’s way of managing it.
The most important thing to know is that credit can get better or worse. This makes paying bills or loans even more important for someone who would like to apply for new loans or mortgages in the future. In addition, lowering overall debt will significantly increase a credit rating.