Credit scores are a crucial part of the financial world, but many people don't fully understand what they are or why they matter. At its most basic level, a credit score is a number that estimates your likelihood of repaying new debt. This number can have a significant impact on your life, affecting everything from your ability to get a mortgage to the interest rate you'll pay on a credit card.
So what exactly does your credit score mean, and what's a good credit score versus a bad one? There are two primary credit scoring models used by lenders: FICO and VantageScore. FICO scores range from 300 to 850, with higher scores indicating better creditworthiness. VantageScore ranges from 300 to 850 as well, but there are some differences in how it calculates scores.
Generally speaking, scores of 690 or above are considered good credit. A score between 630 and 689 is fair, and anything below 630 is poor. The higher your score, the more likely you are to be approved for credit and to receive favorable terms.
Companies use credit scores to make decisions on whether to offer you a mortgage, credit card, auto loan, and other credit products, as well as what interest rate to charge you. A lower score can result in higher interest rates, making it more expensive to borrow money. It can also limit your ability to get credit altogether.
It's essential to maintain a good credit score, as it can open up more opportunities for you and save you money in the long run. But how do you know if your credit score is good? Many credit card issuers now offer access to your credit score, but there are differences in the type of score you get and where the information comes from.
The average American has a 714 FICO score and 701 VantageScore, considered a "good" credit score. However, different age groups have different average scores. Gen Z (ages 18-25) has the lowest average score of 674, while baby boomers (ages 56-74) have the highest average of 748.
Before you get a personal loan, the lender will want to know what your credit score is. A good credit score can always help you save when borrowing money, but especially when interest rates are as high as they are now. Even a small difference in interest rates can add up to significant savings over time.
In order to be approved for new credit cards or loans, it's vital to have a good credit score. But what is a good credit score, and how do you achieve it? There are several steps you can take to improve your credit score, including paying your bills on time, keeping your credit utilization low, and avoiding opening too many new accounts at once.
In conclusion, credit scores are an essential part of the financial world, and it's crucial to understand what they are, what they mean, and how they can impact your life. By maintaining a good credit score, you can open up more opportunities for yourself and save money in the long run. So whether you're just starting to build your credit or looking to improve your existing score, take the time to learn about credit scores and how they work.