How Credit Score Ranges Impact Your Ability to Borrow
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Of all the financial subjects you think about, I’m guessing “credit score ranges” may not be at the top of your mind. However, understanding how credit scores are grouped gives you a better idea of how lenders view you regarding risk as a borrower.
The credit score range you fall under impacts a variety of financial scenarios you’ll face as you’re adulting. Your range not only signals to lenders how risky of a borrower you are, it also influences how much interest you end up paying or even the apartment you’re able to rent.
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Calculating your credit score
Calculating your credit score is a complex subject, but it’s helpful to have a basic understanding like credit score ranges.
The three major credit bureaus — Experian, Equifax, and TransUnion — are the credit reporting agencies responsible for adding information into your personal credit report.
This information is then used to calculate your personal credit score. Two widely used credit scoring models are FICO and VantageScore.
FICO is short for Fair Isaac Corporation. This is the score 90% of lenders use to determine your credit rating when applying for loans and credit. Under the FICO umbrella, there are several different credit score calculations, but the most common ones lenders use are the FICO8 and FICO9.
VantageScore is another popular calculation used by numerous lenders and tenant screenings. VantageScore 3.0 is one of the scoring models used the most under the VantageScore umbrella.
Each scoring model has its proprietary method for calculating your score. While the calculations are based on top-secret algorithms, you can get a general idea of each one.
Your FICO score takes into account the following:
- Payment history (35%): Consider this your payment track record. On-time payments will be better than showing missed payments when determining your creditworthiness.
- Credit utilization (30%): How much of your available credit you use.
- Length of credit history (15%): The number of years you’ve
- New credit (10%): How often you apply for and open new accounts
- Credit mix (10%): The variety of credit products you have includes credit cards, installment loans, finance company accounts, mortgage loans, etc.
Whereas your VantageScore3.0 may look more like this:
- Extremely influential: Your payment history
- Highly influential: The types of credit you have and the percent of credit limit used
- Moderately influential: Total balances
- Less influential: Available credit, recent credit behavior, and number of inquiries
The bottom line is that your score varies depending on the calculation being used. While you can obsess over the exact number, a more helpful tool may be understanding the general range your score falls under.
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Credit score ranges
Your credit score is calculated each month, so you’ll notice changes to it regularly. To make it slightly more confusing, the ranges vary somewhat when comparing a FICO or a VantageScore.
Here’s a high-level overview of the range categories for the two major calculations. Then, we’ll understand what each range means for you and your borrowing goals.
FICO
- Very poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Exceptional: 800 to 850
VantageScore
- Very poor: 300 to 499
- Poor: 500 to 600
- Fair: 601 to 660
- Good: 661 to 780
- Excellent: 781 to 850
What each credit score range means for borrowers
What exactly do these mean for you as you seek borrowing opportunities? Here’s what to expect from each category.
Exceptional
If your credit score falls between 800 to 850 for FICO and 781 to 850 for VantageScore, you are considered an exceptional borrower. Borrowers in this range will most likely experience easy approvals when applying for a loan or credit. This also means exceptional borrowers receive the lowest interest rates and the least amount of fees.
Those within this range have no issues qualifying for credit and have the easiest time with the lending process. Plus, you’ll have the choice of which premium credit card offer you want to take advantage of.
Very Good
If your FICO score is between 740 and 799, it’s considered Very Good. You should note that VantageScore does not have a range with a Very Good designation. Borrowers who fall in this range won’t have issues with approval. They often qualify for better interest rates on loans and credit cards and generally have an easier time with the entire loan process.
Good
A score of 670 to 739 falls into the Good category. This is slightly different for VantageScore, where the Good range is 661 to 780. You are close to the national average if your score is within this range. The current FICO average for Americans is 701.
Lenders consider a score in this range as an acceptable borrower and should qualify for most loans and credit cards. However, this credit score range means you’re more likely to have a higher interest rate than a borrower with excellent credit.
Fair
FICO scores that range from 580 to 669 fall into the Fair range. The VantageScore Fair range is 601 to 660. If you fall into this range, you may be turned down for a loan or considered a subprime borrower. The interest rate will be significantly higher for consumers approved for credit cards or loans within this range than the Good, Very Good, or Exceptional categories.
Poor
VantageScore defines a Poor category, whereas FICO does not have one with this label. If a VantageScore credit score is between 500 and 600, then it is considered poor. If your credit score falls into this range, you should expect to pay the highest interest rates, and you may be turned down for credit.
Very Poor
A FICO score of 300 to 579 is considered Very Poor. It’s not unusual for a score in this range to have a bankruptcy or other major credit problems on the credit report. Most lenders will deny a loan or credit application with a score in this range.
If you’re applying for a credit card and fall in this range, your best option is a secured credit card. A secured credit card requires a security deposit equal to your spending limit. This is likely the only credit card a score in this range would qualify for, but it could help you improve your credit and give you an option for a card.
Additionally, a deposit is required if you’re putting utilities in your name with a Very Poor credit score.
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How the scoring model affects your credit score range
As you can see, it’s a little more complicated than you might expect when calculating a credit score. And the score calculated by VantageScore could put you in a different category than the same FICO score.
Each lender has its own set of criteria and standards for making credit decisions. What one lender considers Very Good, another lender may label as Good.
What’s important to remember is a few points can make a big difference. If your FICO credit score is 668, you technically fall within the Fair category. If you get a few more points, you get bumped up within the Good category, with more borrowing options available. You also pay less interest when approved for lower interest rates.
How to improve your credit score range
Whether a lender uses FICO or VantageScore or if you’re unsure what range you fall into, your best approach is to be proactive about your credit score.
If you’re worried your current credit score range may put you in a less than favorable position for obtaining credit, the good news is you can take actionable steps to improve. Like other financial choices, it takes work. But your hard work pays off with an improved score.
- Pay your bills on time: Lenders love to see borrowers who pay their bills on time each month. Avoid late payments and watch your credit score improve by paying your bills promptly.
- Keep your credit utilization ratio low: Credit utilization is the ratio of your available credit versus the amount of credit you use. So if you have a $10,000 credit line but only a $500 balance, then your utilization is low. This shows lenders you’re responsible for your borrowing.
- Obtain a secured credit card if necessary: If you need help rebuilding your credit, a secured credit card can help. It keeps your spending in check while using the card and limits your credit risk.
- Make credit monitoring a priority: You are guaranteed three free credit reports each year - one from each of the major credit bureaus. To request a copy of your report, go to annualcreditreport.com. You can also obtain your free credit score from many credit card companies, your bank, or credit union. When reviewing, look for discrepancies in your report and clean up any mistakes as quickly as possible.
- Keep a mix of credit: Although not as important to your credit score as other factors, having a mix of credit can raise your score. This means using different types of credit, such as installment loans, credit cards, and mortgages.
- Consider boosting your credit score: Programs such as ExperianBoost and TransUnion’s eCredAble Lift can improve your overall credit score. These programs synchronize with your bank account to look for regular monthly payments you make for utilities. There are other similar programs available that do the same for rent payments. If you pay these regularly, using one of these credit-boosting programs could give you a higher credit score and bump you up into another range.
Another important part of improving your credit score is monitoring inquiries. Every time you apply for a form of credit, the lender makes an inquiry, which shows up on your credit report.
- A hard inquiry is when a lender thoroughly examines your credit report, such as when you apply for a card with the credit card companies or apply for a loan. You have to permit a hard inquiry.
- A soft inquiry is more of a routine check; a company can perform it without your permission.
Try to limit the number of inquiries because your credit score is impacted by each one, although some inquiries “fall off” your report faster than others.
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The bottom line
Understanding how lenders view your credit and the credit score range you fall under helps you navigate through various lending situations. While the score calculations are quite complex, there are basic principles you can follow to put yourself in the best credit position possible.
While your good credit score or bad credit does not define you as a person, it does impact your ability to experience big moments, such as buying a house or a new car. By understanding your credit score range and how lenders view you as a borrower, you can better understand what to expect when going through the lending process.
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Writer
Sara Coleman is a former corporate gal turned creative entrepreneur. She began writing professionally several years ago and now contributes to multiple websites, blogs, and magazines. She’s also an avid reader and can’t resist a great historical fiction novel. Sara holds a BA in journalism from the University of Georgia and can be found supporting her Bulldogs every chance she has. She resides in Charlotte, North Carolina, with her wonderfully supportive husband and three children. When she’s not ushering her kids to sports and dance lessons, she can be found creating content for her own website, TheProperPen.com.
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