Credit Score Rating Scale

Nowadays, people have become increasingly dependent upon credit, and therefore it's essential to understand what is a credit score, why it is important, and how can we maintain a good credit score rating.

What is a Credit Score?

A credit score is a statistical technique used to determine the probability that an individual will pay back the money he or she has borrowed within a specific period of time. When you borrow money or take on credit, your lender sends the detailed information to the credit bureau or credit score rating system to create a credit report for analyzing how well you handle your debts. The credit bureau that issues these free credit score ratings have various evaluation systems, and which depend upon many factors. There are three main credit score bureaus that can be used for calculating credit score rating. These are Equifax that uses the Fair Isaac Scoring Model, Experian which uses the Plus Score system, and Trans Union that uses the Classic Fico Risk Score Model. The main factors employed to evaluate an individual's credit report score rating are the person's credit payment history, current debts, time length of credit history, credit type mix, and frequency of applications for new credit.

Why is Credit Score Rating Scale Important?

Whether you apply for a credit card or mortgage, your credit rating score report is always checked. This report enables stores to accept checks, banks to issue credit or debt cards, etc. According to your credit score report, the lenders can analyze what risk you pose to them. As per related financial theories, increased credit risk implies that a risk premium has to be added to the price at which the money is being borrowed. For example, if you have a poor credit score, your lenders will lend you money at a higher rate than the rate at which money is loaned to someone with a better credit score. Given below is a table that will help you understand the credit report rating scale used by lenders.

Credit Score Rating Chart
Credit Score	Description
760 - 849	Excellent score. The lender will offer you their best interest rate.
700 - 759	Great score. There won't be any trouble in getting a loan at good interest rate.
660 - 699	Good score. There won't be any problem in getting a loan at good interest rate.
620 - 659	Fair score. You may qualify for the loan but not at good interest rates.
580 - 619	Poor score. You may qualify but the interest rates will be very high.
500 - 579	Very poor score. It's doubtful that you may qualify for the loan, and if you qualify, the interest rates will be extremely high.

Now that you know what is a good credit score rating, let us take a look at some tips that will help you improve your credit score so that lenders can take you more seriously.

• Make loan payments on time and for the right amount.
• Avoid over-extending your credit, and stay away from unsolicited credit cards as they won't benefit in any way to your credit score.
• Don't ignore your overdue bills, and if you face any problem regarding repaying your debt, contact your creditor for repayment arrangements.
• Be sure of what type of credit you have, as credit from some financing companies can affect your score in a negative way.
• Try keeping your outstanding debt as low as possible. Extending your credit close to your limit constantly is considered to be bad and poor.
• Restrict your number of credit applications as having many hits on your credit report is viewed poorly. Do remember though that not all hits are considered to be negative. Things like monitoring of accounts, prescreens, etc., are viewed positively.

Therefore, by understanding what a credit rating scale is and its significance, you will never overlook it as doing that can detriment to your financial health. The above mentioned tips to improve your credit score will surely help you in improving and maintaining your credit score, and will also enhance your overall financial growth.