What Do The Different Credit Score Levels Mean?

Posted by on December 16, 2019 @14:22:47 EST
A few different credit cards lying together.

Your credit score is one of the most important numbers in your life. These digits play a large role in determining your financial future and providing you with access to a mortgage and other forms of credit that you will need to make major purchases (such as cars, boats and home renovations). 

Being aware of your credit score is important to know where you stand in the eyes of prospective lenders. Bad credit scores will usually require that you undertake a process of credit repair in order to receive reasonable interest rates on your borrowing. This information is straightforward to acquire. You only need to get in touch with one of the credit bureaus in your country in order to learn about your credit score and your broader financial history. While the information that you receive will clearly indicate a credit score, understanding how the number was derived and what the credit score means takes a bit of interpretation and guidance.

In order to accurately assess the information contained in your credit score, and, to know whether your credit score is good or not, it is important to have a bit of background on the topic. Let’s explore some of the nuances contained in a credit score and discuss what some of the different credit score levels mean in more detail.

What Are The Different Ranges For Credit Scores?

To start with the essentials, it is important to have an idea of the possible values that your credit score can take. In Canada, credit scores typically range from 300 to 900. However, there are many credit score systems in use by some providers for different purposes. Nevertheless, they are all roughly similar in terms of how your lender will view it in terms of whether to provide you with credit or not. 

Unlike golf scores, your credit score is better the higher it is. Lenders will look with favour on those with high credit scores as this usually implies that you are a low-risk investment and someone who diligently pays off their bills and debts on time.

The top tier of the credit score hierarchy are scores ranging from roughly 800 to 900. If you have a score in this range, then you are considered to have excellent credit and you will likely be able to receive the lowest rates available from any reasonable lender. Naturally, a lender will also factor other things into their decision to lend to you. If you are unemployed or if you have few assets (despite your positive credit score), it is unlikely that you will be able to borrow exorbitant amounts of money that you have no way to conceivably repay. Your credit score, while important, is only one factor that goes into the ultimate decision that a lender will make.

Between 720 and 799, you are considered to have good credit. If your credit score falls into this range, you can expect that you will receive many great rates from a wide variety of lenders when you are looking for credit. If you want to increase your options, then you might consider making a few forays into the world of credit repair before making your next big purchases.

From 650 to 719, the situation still remains strong for most people. Your credit is considered to be in good standing in this range. 650 is usually the cut-off point for those who will receive access to the most reasonable and favourable rates from most lenders. If you can manage to reach and maintain a score that surpasses the 650 barrier, then you will likely have few issues when it comes to accessing the credit that you need. However, there are benefits from taking on some credit repair strategies and pushing your score a little bit higher.

Between the credit scores of 600 to 649, your situation becomes a bit more toned-down (though not terrible by any means). This means that your credit is considered to be fair by most lenders. You may have some difficulty in getting favourable rates from financial institutions, though if you demonstrate that you have a solid and consistent history of paying your debts back on time and in full then you may have more success.

At the bottom of the hierarchy lies credit scores between 300 and 599. Within this range, many people are just starting to build their credit scores, or they have encountered financial difficulties with loan or credit repayment in the past. Scores in this range are usually a warning sign for lenders who will look at the prospect of lending to you with caution. While some lenders specialize in working with those who have bad credit, it is more likely that you will need to undergo some credit repair in order to receive rates that are reasonable when you need credit in the future.

What Goes Into Calculating A Credit Score?

A calculator lying next to a pen, a paperclip, and a spreadsheet.

Your credit score is a weighted metric of several different factors based on your financial history and current financial status. The score is usually composed of your payment history (whether or not you have paid your bills and loan repayments on time in the past), your credit utilization rate (the proportion of your outstanding debts to your potential credit), the length of your credit history, loans that you have recently applied for, and variation in the forms of credit that you have used (that is, it is advantageous to have experience in dealing with different types of credit beyond simply using a credit card).

Knowing the different factors that go into making your credit score what it is today will provide you with an awareness of the best options for building it back up. For example, if your ability to repay loans on time is keeping your score down, then taking out a loan and being diligent with the repayment process will provide you with a boost. Mixing up the forms of credit that you have taken out will also increase your credit score. If you have only ever used your credit card for the purposes of borrowing, then it might be worthwhile to explore other avenues. Try a personal loan or a student loan and be sure to pay it back with care to see the most benefit.

Other factors are also important for calculating a credit score, though these are not as openly discussed by most credit bureaus. These factors include the number of jobs you have had within a specified time period. If you frequently hop from job to job, then you are viewed as a less stable financial investment to lenders. The same thing applies to someone who frequently hops around from address to address. If you move around a lot, then it may negatively affect your credit score. Staying in one place for a longer period will actually add points to your score.

Finally, one oft-neglected factor that goes into calculating your credit score is actually having debt. If you have no debt or have not had debt in the past, then this is actually a drawback for your credit score. This is because a history of having debt and diligently paying it off demonstrates that you have the ability to repay your debts when you have them. Without this experience, you will not be able to showcase your conscientiousness and creditworthiness.

Improve Your Credit Score Through Credit Repair

Somebody going through the money in their wallet.

If you need to boost your credit score to provide better access to reasonable interest rates on loans, then it is important that you work through the process of credit repair to restore your credit to one of the higher ranges. This will help you secure better deals on mortgages as well as car loans.

Receiving your credit report from your national credit bureau is important before the process of credit repair can begin. This is because how you go about repairing your credit will depend on what is wrong with your credit history. Have a thorough look at what your credit report says and highlight the areas that are most in need of improvement. Then, implement a plan for building your reputation and competence in these areas.

Consistency is one of the most important factors that go into restoring any credit score. If you have currently outstanding debts, then making sure that you do not miss any payments and even occasionally pay back more than the specified monthly payment will go a long way towards restoring your credit score. Make sure to stay organized and pay all of your bills on time as well. Things like utility and cell phone bills may seem more minimal in the light of some of your outstanding debts, but they still factor into the overall credit score that lenders will see.

If you have a credit card, then it is a good idea to put much of your consumer spending onto the card and pay this balance off before the end of each month. This is a good habit to get into in order to build your credit score. However, do not forget to make these payments! Not only will this lower your credit score (if the minimum payment (at least) is not made), but the interest rates on credit cards are typically much higher than other forms of lending. This will leave you in rough financial shape if you are already in a tenuous position. 

Be cautious about any credit institutions who claim that your credit can be restored quickly if you work with them. While some things will influence your credit score more drastically than others, there is no rapid way of boosting your credit score in a short time. This is a process that requires diligence and patience – the same diligence and patience that you will need to pay off your debts in the future (when your credit score is better).

Keep An Eye On Your Credit Score

It is important to be aware of your credit score as time goes on. Low credit ratings can have a significantly deleterious impact on your life. Good credit scores are necessary for taking out loans with the best possible rates. Low rates make large purchases much more affordable when looking at your finances in a long-term sense. In some cases, a bad credit score can even be a sore spot for potential employers. If your employer receives your permission to investigate your credit score and they see that you are in the low range, then you may be viewed as irresponsible and not suitable for the position! Even something like renting a vehicle may be more difficult if your credit score is poor.

If your credit score is poor – or even below 650 – then it is worthwhile to explore the options outlined here for repairing your credit. Even if the process is difficult, the benefits are worth it! Practicing good financial habits that are necessary to repair your credit will also set you up for continued financial success into the future. It’s also worth keeping in mind that we can help you secure a bad credit car loan, so give us a call today if you’d like some advice on where to go next.

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