This post is sponsored by CreditRepair.com. All opinions are 100% our own.
You know the importance of a credit score – and you may even know what your score is. But do you know what your score means? How does your score compare to the lowest possible score and the highest credit score?
Typically, your score will land on a scale from 300 to 850, with 850 being the highest score. Lenders use this score to gauge how “trustworthy” you are – meaning your ability to pay back loans and pay them back on time.
The higher the score, the more likely you are to receive credit or loans with a fair interest rate. However, if you have a poor score, you will find it difficult to be approved for loans unless you have a very high income. And if you are approved, you can almost guarantee you will have a sky-high interest rate.
This may leave you thinking – where does my current score fall, how can I achieve that perfect score, and what can I do if I have a poor credit score?
How do Credit Scores Work?
Simply put, a credit score is a number that dictates whether or not financial institutions will issue credit or lend you money based on your credit history. If you are someone who keeps your credit utilization low and pays bills on time, you will likely have a high credit score.
However, if you have high credit card utilization and any missed payments, you will probably have a low credit score.
There may come a time in your life where you need to borrow money – you’ll have to take out a mortgage, apply for a credit card, or get a loan for a car. To determine whether you qualify for a loan, lenders will look at your FICO score. Your FICO score is the middle score based on information from three different companies – TransUnion, Experian, and Equifax.
For example, if those companies are reporting back scores of 710, 730, and 760, your FICO credit score is 730. These numbers are very different, which is why it is important that you check your credit reports regularly for any errors.
What are the Credit Score Ranges?
Knowing what the credit score ranges are will help you determine whether you have a high score or if you need to repair your credit. FICO scores are typically on a 350 to 850 scale, though there are industry-specific FICO scores as well. Generally speaking, scores above 700 are considered to be good.
Here are FICO’s credit score ranges:
- Exceptional Credit: 800 – 850
- Very Good Credit: 740 – 799
- Good Credit: 670 – 739
- Fair Credit: 580 – 669
- Very Poor Credit: 300 – 579
If you have a good credit score, lenders are more likely to loan you money since you pose less of a risk than those who have defaulted on payments or have a high debt to income ratio. Those with a poor score may not necessarily be turned down for loans, though they will probably end up paying higher interest rates.
Is a Perfect Credit Score Necessary?
Believe it or not, a perfect credit score is not necessary in order to get good deals or interest rates on loans. If you have a credit score above 700, you will likely be approved for loans or credit cards with a fair interest rate.
In fact, while it is possible to achieve a perfect score of 850, it is highly unlikely. Less than 1% of consumers have a perfect credit score and those that do don’t have it for long since the three companies are constantly re-calculating your score.
Since you can’t determine exactly what affects your credit score, there is no need to obsess over obtaining the perfect score.
What The 800 Club Looks Like
Getting into The 800 club is tough, and staying in it is even tougher. However, there are some consumers who have achieved this milestone.
Here’s what its members have in common:
- No late payments on their credit report (or late payments were over 7 years ago).
- Owes less than $3,500 in debt.
- Use less than 7% of their credit limit.
- Has a credit history of at least 25 years.
FICO recommends that no one opens unnecessary accounts in order to achieve a higher score. In fact, this can hurt your credit score instead. It’s also important to note that those who have a perfect score of 850 don’t receive extra benefits over someone with a score of 802.
How can I Improve My Credit Score?
Whether you have a poor credit score or striving to get into The 800 Club, there are some steps you can take to improve your score.
- Know how to use your credit card
- Keep your credit balances under 30% of your credit limit
- Pay your bills on time
- Dispute any wrong information or errors
- Reach out to a credit repair company
- Check out credit cards that are credit builder accounts
If you don’t know where to start, we highly recommend signing up for CreditRepair.com. CreditRepair looks at your credit report to see what can be fixed and where improvements can be made.
They will speak to the credit companies on your behalf and ask them to correct any errors that are on there. This will put you in a much better position when applying for a loan or credit card.
While having the highest credit score can certainly give you bragging rights, it isn’t necessary to achieve and means very little to lenders. Once you have a credit score of 780 or above, you are considered low risk and pretty much guaranteed any loan you apply for.
If your credit is less than stellar, don’t forget to sign-up to CreditRepair.com to see how they can help you. A perfect score won’t help you, but a poor score WILL hurt you, so make improvements as soon as possible.