Harry N. Stout
22- Are You Scoring Enough? Part 1
Updated: Jan 15, 2021
Are you scoring enough? I am not talking about sports, video games, or other activities. I am talking about your personal credit score. As we discuss in the FinancialVerse, your credit score is extremely important and a low score could restrict your ability to get credit at time when you need it most. Your credit score needs to be monitored throughout your life, even as you progress through the Fulfilling Stage, or the post full-time working period of your life.
First let’s review the major points of credit scores.
The Scoring System
The base FICO system is used by 90% of creditors to make credit decisions according to the FICO website. The FICO 8 score is the one most commonly used by lenders to grant credit. The FICO scores are compiled using data obtained from the three credit bureaus: Equifax, Experian, and TransUnion.
FICO credit scores typically range from a low of 300 to a high of 850. (A few custom FICO scores (some of the 28 different calculations available) for auto loans or bank cards go from 250 to 900.
When you get a credit score report from your lender, your number is often depicted on a continuum like a spectrum or rainbow, with bright green denoting the 800 range and red representing low scores.
FICO says there’s no cutoff where a good credit score becomes a very good credit score, or a very good credit score becomes exceptional. But Experian, one of three major credit bureaus that supply data used in the FICO score, presents the scores this way:
800-plus: Exceptional. Only 1 percent of borrowers in this range are likely to become seriously delinquent. You'll get approved easily for the lowest rates.
740-799: Very good. Two percent of borrowers in this category are likely to become seriously delinquent. You could get better rates from lenders, but it's not a given.
670-739: Good. Eight percent could become seriously delinquent. This stratum is where most Americans sit. You're an "acceptable" risk.
580-669: Fair. An estimated 27 percent in this group could become delinquent. You're a candidate for subprime loans at higher rates.
579 and below: Poor. FICO doesn't trust this group at all; it estimates that 61 percent could become seriously delinquent. If you can get credit at all, you'll probably have to put down collateral or a deposit. You also may have to pay a fee that borrowers with higher scores don't pay.
To learn more about your FICO score go to MyFico.com. In the next blog post, we will look at the score, how you rate and how it is calculated.