Credit Score Ranges and What They Mean

Credit scoring is the statistical technique of assessing a borrower's creditworthiness with the aid of credit scoring models. The first scoring model was developed by Fair Isaac Corporation (FICO) and till the year 2006, credit scores were synonymous with FICO scores. In the year 2006, the three credit bureaus, viz. Experian, Equifax and TransUnion introduced the VantageScore as the main competitor to the long dominant FICO credit score. Although the credit bureaus still compute FICO scores, since 13th February 2009, Experian's FICO scores are no longer available to the consumers. However, lenders are still provided FICO scores computed by Experian and the other credit bureaus. The newest version of the FICO scoring system, known as FICO 08, is also available to the credit bureaus since July 09.

In the aftermath of the sub-prime crisis, the new credit score (ratings), i.e. FICO 08, have become increasingly popular amongst lenders. This is on account of its supposed accuracy in predicting defaults. The VantageScore too has become popular since it places a great deal of emphasis on the manner in which consumers handle mortgage loans. Considering this, the following write-up provides some insight on credit score ranges and what they mean from the perspective of FICO 08 and VantageScores.

What is a Good Credit Score Range?

The article, Credit Score Range - What is a Good Credit Score, has dealt with the following questions pertaining to FICO scores, mainly, What is a credit score range and What is considered a good credit score? Hence, people may be interested in referring to the aforementioned article since the FICO 08 model evaluates the factors considered by the FICO model and more. For a quick recapitulation, the latter considers 300 - 850 as the credit score range, with 850 being the highest credit score possible. Previously, a credit score over 720, or in some cases over 680, was considered good, but in the current scenario people with credit scores between 780 and 850 are considered prime borrowers.

FICO 08 Scoring Model: This new credit scoring model uses the same factors that were used by the FICO model, viz. payment history, credit utilization, length of the credit history, types of credit used, and recent applications for new credit while computing the credit score. Moreover, the credit score scale is also the same, namely, 300 - 850.

However, there are significant differences in approach when it comes to missed payments, credit usage, payment history, variety of credit, piggyback accounts, and delinquencies. In general, people who have accessed different types of installment loans, like mortgages and car loans, will be rewarded more by the FICO 08 scoring model in comparison to the FICO model. Again, people who use revolving credit extensively, those who are closer to their credit limit, and have a history of late payments will be penalized more by this new scoring model. However, in contrast with the old model, minor delinquencies will not result in a big penalty. In addition to the aforementioned changes, piggyback users, who try to increase their credit score by adding themselves as authorized users on credit accounts of people with good credit, will no longer benefit in the form of improved FICO scores. FICO 08 will also have two more scorecards as compared to the older FICO model that only had 10 scorecards.

VantageScore: This scoring model was developed by the 3 credit bureaus and is considered the primary competitor to FICO 08. According to this system, credit scores range between 501 and 990.

People with credit scores in the range of 901 and 990 are considered super-prime or least risky borrowers; the range 801 - 900 includes borrowers who have exhibited good credit management skills and are considered prime plus, while 701 - 800 includes creditworthy or prime borrowers. The last two category of borrowers, viz. non-prime and high risk individuals have credit scores in the range of 601 - 700 and 501 - 600 respectively.

According to this credit score rating scale, mortgage refinancing and loan modifications will not have a negative impact on the credit score of the borrower, in fact the latter may even result in a moderate increase in the borrower's credit score. On the other hand, short sales and bankruptcies will have a negative impact like in case of the FICO model.

In the light of these changes, the question - 'credit score ranges and what they mean' - can best be answered by considering the appropriate model and categorizing borrowers accordingly.