Credit cards, auto loans, mortgages, insurance rates, rentals, and even lending terms often hang on one number: credit scores. That credit score will influence almost all your financial options and determine whether you’re a reasonable credit risk. In other words, are you someone who will meet the contractual obligations of whatever financial agreement you’re trying to enter into?
Institutions prefer to do business with individuals with the least likelihood of defaulting on their debt, which means they will defer to this three-digit number. It’s a fair and objective assessment. It’s also much more efficient than lenders had to do in the past, which was to pore over an applicant’s credit report.
A credit score is a number between 300 and 850 that measures your creditworthiness. It’s typically calculated based on financial information from credit bureaus. Factors like payment history, length of credit history, credit utilization, opened accounts, age of accounts, recent credit inquiries, and credit mix (i.e., personal loans, mortgage, number of credit cards, and so on) will all be factored into the credit score.
If you were to apply for a credit card, the lender would “run your credit,” usually a FICO or Vantage score, and use that number to determine whether you more than just qualify for the credit card but at what interest rate and credit limit. A low number, for example, will likely lead to a higher interest rate and lower credit limit for that card. If it’s too low, the lender may deny approval — though there are lending options for those with bad or no credit.
By and large, credit scores fall within four to five buckets. A “good” range with FICO scores would be between 670 and 739. But there are other ranges your credit might fall within. Here’s a quick look at the base FICO credit score chart:
If your credit comes back as exceptional, you score well above the average. Chances are good that you’ll have little trouble receiving approval when applying for credit, loans, or a mortgage. You’ll also likely find good terms in a financial agreement.
While Vantage scores are similar to FICO’s, the ranges vary somewhat. In this instance, a “good” range would be between 661 and 780. As with FICO, there are four other buckets. Here’s a quick look at the Vantage credit score chart:
Again, an excellent rating will open up many financial doors for you — but so will a good grade. It may just impact the terms of a financial agreement slightly.
By most lending standards, a “good” credit score for your age will be in the 700s. That’s ideal, as it’ll enable you to secure better rates, terms, and offers. Many lenders base credit risk on averages. However, they do factor in your age when determining creditworthiness. This credit score chart can give you a better idea of the average FICO score by age:
For a 25-year-old, a lender would likely consider you a good credit risk if your credit score came back above the average — closer to 700 is better. In the 700s would be better still, but you’d probably be seen as creditworthy when above the average for your age. The reason is often simple math, as your credit and payment history will be shorter when you’re younger.
Your age, however, doesn’t directly impact your credit score. It will only come into play when a lender decides whether to approve a credit card, personal loan, mortgage, or other financial agreement. The same is also true for income and geographic location.
Though this should go without saying, having good credit can make many things more accessible. You can more easily secure a loan to purchase a home or car. You’ll also likely qualify for lower rates — and not just with loans. In some states, providers will use your credit score to set premiums on various insurance policies.
If you’d like to learn more about credit scores or discuss whether your credit score qualifies you for a loan, please let us know. A member of the Bell Finance team would be more than happy to answer your questions.
