A FICO credit score is truly a measurement of risk to businesses that extend some type of credit to consumers. The higher the score, the lower the associated risk. Conversely, the lower the score, the higher the risk to creditors.
FICO is not the only scoring agency available to businesses for determining lendor credit worthiness. Another organization available is VantageScore (http://www.vantagescore.com/about/vantagescore_model).
VantageScore uses similar partnerships and data gathering methods to determine the score of a given individual. FICO score borrowers on a scale from 300 to 850 while VantageScore rates on a scale of 501 to 990. Both services offer a glimpse into the way businesses view you and it is always a great idea to check with both organizations at least once a year or prior to making large purchases. When looking to repair your credit, there are often products and services available through these scoring agencies that can help identify errors, outline steps you can take to improve your score, and how to report changes. Who better to talk with than the organizations businesses, lenders, and credit card agencies turn to when determining who will be approved or denied?
Credit scores are frequently viewed in ranges. For instance, many home loan creditors will only process applications of applicants with FICO scores of 610 or above. While credit card agencies, depending on their specific requirements, may approve unsecured applicants with scores below 500. These credit card offer great opportunities for individuals with lower scores to prove credit worthiness through good money management and regular payments. The common score ranges are:
– 300 to 450 (FICO) | 501 to 630 (VS) Extreme Risk
– 451 to 500 | 631 to 710 High Risk
– 501 to 580 | 711 to 799 Medium Risk
– 581 to 629 | 800 to 859 Average Risk
– 630 to 700 | 860 to 890 Low Risk
– 701 to 799 | 891 to 919 Minimum Risk
– 800 to 850 | 920 to 990 No Risk
During the process of rebuilding your credit, what is a score to target? Over the years, the ‘ideal’ score has changed. In the 1980s the ideal score was 650 to 680. In the 1990s it hit the low 700’s. Nowadays, it is about 720. According to statisitics gathered by FICO in 2010, the median score was 723.Furthermore, there is a gap between minorities and non-minorities.
According to the Fannie Mae Foundation in 2005,
“43 percent of minority applicaitons have FICO scores falling in the 580 to 679 range, arguably the area of close calls in underwriting. By contrast, 32 percent of nonminority applications fall between this range.”
The best way to determine what your goal credit score is, is to determine what your goal with the credit score is. Are you working towards a home? Looking to get a better job or start a family? Having these goals in mind and clear ideas of how you want to get there will help motivate you to have good money habits.
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