If only there was a simple answer to that. The more important question is what exactly are you applying for? A score that’s good enough to get you a Capital One credit card isn’t necessarily good enough to get you a low interest mortgage.
What those 3 digit numbers say about you to potential lenders is obviously important. So it’s essential that you understand what your scores are telling lenders about your financial responsibility.
Credit scores generally range from 350 to 850. And while industry standards usually position the target for loan approvals with low interest rates at 720, there are no guarantees in the lending game. Especially in this economy, many lenders have become stricter with their requirements.
To give you a basic idea on where your credit score ranks and what it means to your borrowing power:
Interest Rates Make a Huge Difference
Just being approved isn’t always the blessing that it may seem at first. You credit scores factor heavily into the terms you’re offered. And while it might not look like there’s much of a difference in the monthly payments, over the course of the loan, that money adds up.
According to myFICO’s Loan Savings Calculator a person who has a 630 credit score will pay over $100,000 more over the course of repayment on a 30-year fixed loan for $300,000 then someone with a 760. That’s why it makes sense to look at your credit reports before applying for a loan and handle any credit repair a few months in advance.
When it comes to auto loans, the difference is even bigger. While you’re more likely to get approved with lower credit scores, the APR’s can climb to almost 20%.
Understanding Your Credit Profile
While these rates and guidelines aren’t set in stone, this is by and large how lenders are going to evaluate your credit scores. Just one slip up or mistake on your credit reports can knock your score down up to 100 points. With 2 or 3 “mistakes” even if you are approved, which is a long shot, you’re looking at astronomical interest rates.
Understanding your credit profile is the first step to creating a better financial future. Take a look at your credit reports and start repairing your credit and settling debts if need be. Otherwise you’ll always be stuck in the vicious cycle of paying too much money on loans and credit cards while never saving enough money for your future. A little time and effort can make all the difference.
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