A credit score is a number ranging from 300 to 850 that determines the customer’s creditworthiness. A credit score is based on your credit history (number of open accounts, the total level of debt, and repayment history), and the higher it is, the more attractive the borrower is. Lenders use credit scores to evaluate the probability that an individual taking, for example, a home equity loan for bad credit Chicago, will repay the loan promptly.
A credit score between 580 and 669 is considered either fair or bad as lenders often refer to this group as “subprime”, which means they may have a hard time repaying a loan, while a credit score between 300 and 579 is considered to be very poor. Here is a list of credit score ratings and how it can affect your financial status:
- 300 – 579 – This is considered a very poor credit score, and 16% of people have it. Credit applicants with this credit score may be required to pay a fee or deposit, and they may not be approved for credit.
- 580 – 669 – This is considered to be a fair credit score, and 18% of people have it. Applicants with scores in this range are considered to be subprime borrowers.
- 670 – 739 – This is considered to be a good credit score, and 21% of people have it. Only 8% of applicants in this score range are likely to become seriously delinquent in the future.
- 740 – 799 – This is considered to be a very good credit score, and 25% of people have it. Applicants with this score range are likely to receive better than average rates from lenders.
- 800 – 850 – This is considered to be an exceptional credit score, and 20% of people have it. Applicants with scores in this range are at the top of the list for the best rates from lenders.
What affects your credit score
Several factors affect your credit score, and the two most important are:
- Payment history – Your bill payment history makes up 35% of your credit score. Constantly making payments on time will improve the score, while missing payments will hurt it.
- Amounts owed – Your credit utilization ratio (how much of your available revolving credit you are using at any given time) makes for 30% of your credit score. the more you owe relative to your total credit limit, the lower your score is. Try to maintain a ratio of 30% or less to avoid hurting it, and under 6% for top credit scores.
There are three more factors which affect your credit score to a lesser degree:
- Length of credit history – It makes up 15% of your score, and the older your credit accounts are, the higher the score is.
- New credit – This makes up 10% of a credit score, and the more new credit accounts you apply for in a short period, the more you are considered to have possible financial problems.
- Credit mix – The credit score also considers the different types of credit used by a consumer. A good mix of installment credit and revolving credit shows you can manage different types of accounts, which can help your credit.
How a poor credit score affects your financial status
Having a low credit score can affect you in many ways:
- Higher interest rates – Lenders see those with low scores as a higher risk and will change interest rates accordingly. For example, a higher interest rate on your home mortgage can cost you tens of thousands of dollars over the life of the loan.
- Hard time getting a mortgage – With mortgages being very large loans, lenders want to make sure you will not default on them. This may lead to higher interest rates or lenders may reject your application.
- Risk of being denied credit – If you have a poor history of managing your credit, your loan application may be rejected.
- Difficulty getting approved for an apartment or cellphone contract – Providers avoid losing money with risky customers.
- You could be turned down for a job – If you are applying for a position with financial responsibilities, although your employer can’t access your credit score, they can request your credit report.
- Difficulty obtaining a small business loan – For those running small businesses poor credit could make it difficult or impossible to borrow money to help the company.
“What is Credit Score and How it Affects Your Financial Status” is one of the most asked financial questions on the Internet, as we were told by digital marketing agency Chicago. Having a low credit score can present serious problems with your finances. It is very important to understand how credit scores work and what causes bad credit score, so you can manage your credit responsibly and enjoy more financial opportunities as you improve your score. If you are looking to improve your credit score, call us and get a home equity loan for bad credit Chicago.