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 13^th 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, 2009.

In the aftermath of the sub-prime crisis, the new credit scoring (ratings) system, i.e. FICO 08, has 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 500 and 990.

People with a VantageScore in the range of 900 and 990 (grade A) are considered super-prime or least risky borrowers. They are likely to be offered the best interest rates by financial institutions. According to Experian, approximately 16% of the US consumers fall in this category of super-prime borrowers.

The range 800 - 899 (Grade B) includes borrowers who have exhibited good credit management skills and are considered prime plus, while 700 - 799 (Grade C) 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 600 - 699 (Grade D) and 500 - 599 (Grade F) respectively. It goes without saying, that people with grade F VantageScore are least likely to land up with loans and if only they do get credit, it is generally at an exorbitantly high interest rate. They constitute the bottom 19% of US consumers, according to data made available by Experian.

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. Buy a copy of your FICO score or VantageScore, from the credit bureaus to get an objective evaluation of your creditworthiness.