Just what is a good credit score anyway? You know the importance of having one but do you really know what number is high enough to get the creditors to give you a great interest rate on your next loan? A good credit score generally is any number above 700, but there is a catch. Each type of loan you obtain may require a different “higher” credit score. More so, lenders do not make it easy for you to know what they consider a good score. So, what is really a good score?
The Credit Score Range
Why can’t it be simple?
What is considered a good credit score by one lender may not be good enough for others. Each lender has the ability to set its own standards for lending to consumers. Some lenders are more willing to take on higher risk (lower credit scored) individuals than other lenders are willing to take on. More so, the type of investment may also be a factor. Here are a few key points to remember:
- The credit score range is from 300 up to 850. However, different lenders use different credit score ranges.
- Those with a credit score higher than 700 are often thought to have good credit management skills.
- Most people’s credit scores fall between the range of 600 and 750.
When asking what a good credit score rating is, you have to consider what type of loan you are trying to obtain. The amount of risk a lender is willing to take with you is often based on the amount you are borrowing and your credit score rating. Let us take a closer look.
What Is a Good Credit Score for Buying a Home?
The credit score scale for home buying may be a bit stricter than that for obtaining a credit card. There is more at risk here. However, there is a safety net for the lender. If you stop paying your mortgage loan, the lender can start the foreclosure process to take possession of the home, thus reducing its risk.
Many factors play into what credit score range you should have in order to get the lowest interest rate on the loan, including how much you pay, the lender, the current mortgage rates and even the current index rates. It’s a lot to take in. However, take a look at the following table to see the difference your credit score can make when obtaining a mortgage.
|760 to 850 Score||5.780 percent|
|700 to 759 Score||6.002 percent|
|650 to 699 Score||6.286 percent|
|620 to 659 Score||7.096 percent|
|580 to 619 Score||8.583 percent|
|500 to 579 Score||9.494 percent|
What does that mean to you?
If you purchased a home worth $250,000 with a 30-year mortgage at the rate of 9.494 percent, considered a low credit score, your monthly payment would be $2101. On the other hand, if you obtained the same loan with an excellent credit score, you may obtain a rate such as 5.780 percent. In this case, your monthly payment would be $1463. That’s a $638 savings each and every month for 30 years! That extra does not buy you a larger home or help you to pay off your debt sooner.
*Keep in mind that these interest rates are from one lender and may change on a daily basis. This is an example only.
What Is a Good Credit Score for Credit Cards?
Credit cards are a bit different from traditional secured loans. There is no security here and because of that, there is more risk. You will pay more for credit cards, but if you have a poor credit score, you will face even more problems.
- When it comes to credit scores, what is good for credit card lenders may range from 650 on up.
- If you have a low credit score, such as anything under 600, not only will you pay significantly more in interest, but you may pay higher fees. Membership fees may apply, too.
- You’ll qualify for better incentives, reward programs and longer zero-interest periods from credit card lenders if your score is about 650.
- The best credit scores, including those over 700, will allow you to qualify for exclusive membership into various credit card programs.
What’s a good credit score? For most credit card lenders, it’s all about risk. If you want to improve credit score numbers, you’ll need credit to do it. That’s why many lenders will offer those with a credit score in the range of 550 on up a credit card. You’ll pay significantly more for this type of loan, though.
What Is a Good Credit Score for Auto Loans?
Auto loans are also secured loans and that means that there’s more safety for lenders. Look at the following table to see what a good credit score will get you with this type of loan. Please keep in mind that these interest rates also change very frequently. This is only an example of the possible difference between credit scores.
|760 to 850 Score||3.633 percent|
|700 to 759 Score||3.855 percent|
|680 to 699 Score||4.032 percent|
|660 to 679 Score||4.246 percent|
|640 to 659 Score||4.676 percent|
|620 to 639 Score||5.222 percent|
Also note, that many lenders will provide auto loans to individuals with a credit score under 620, but interest rates, down payments and other fees may be higher.
What You Need to Keep In Mind
It can seem frustrating looking at a credit score chart like those above and wondering how you will ever get the best credit score possible. The good news is that you can improve your credit score by making good credit decisions.
- Pay your debts on time.
- Don’t obtain more than one new loan or credit card in any six month period.
- Work to pay down the debt you have.
- Do use credit – the only way to improve credit is to use it!
- Keep an eye on your credit report to ensure it is accurate.
As a conclusion, what is a good credit score will differ based on the type of lender. The good news is that you have every right and ability to compare lenders to find the one that’s going to offer you the lowest interest rate possible.