What are the Credit Score Categories?

While your credit score is just a three digit number, it can tell a lender a lot about your payment habits and trustworthiness. In fact, most lenders consider credit scores to be one of the main factors they consider in potential applicants. So while you may not realize it, a low credit score can be a big barrier for better credit cards or loans.

Many times, lenders will require additional things for people with low credit or will charge a higher interest rate. If you apply for a loan and have a low credit score, you may have to put up collateral or get a cosigner to cover you in case you default on your payments. A potential risk of failing to make your payments on time could lead to the repossession of your assets. Therefore, it is very important for borrowers to understand the credit score categories and see what ranges they fall into. Borrowers with low credit may want to consider credit cards for rebuilding credit or find a cosigner if they need to apply for a loan. On the other hand, people with high credit should continue maintaining their credit scores through responsible credit habits.

Using the FICO credit score system, here are the credit score categories and the percentage of people that fall into each category:

Note that other credit score providers like VantageScore will have slightly different scoring metrics to determine your credit score. For example, while a 670 is considered good for a FICO credit score, lenders will generally require a VantageScore of 700 to be considered good. This is because there are slight differences in the way each score is calculated, so lenders will consider FICO and VantageScore credit scores in different manners.

And if you’re new to credit, you may also have a low credit score. You shouldn’t worry about this, however, because the low credit score is a direct result of a lack of payment history. Credit scores are based on the following categories:

• Payment History – 35%
• Credit Utilization – 30%
• Length of Credit History – 15%
• Credit Mix – 15%
• New Credit – 15%

For people with credit scores in the poor to fair categories, a good way to rebuild your credit is by using a credit card built for people with low credit. These credit cards don’t come with many benefits but do offer many tools to help cardholders rebuild their credit. Some key features to be on the lookout for are free credit score reports, moderate interest rates, and automatic credit line increase reviews. Free credit score reports can especially be helpful since requesting score reports multiple times in a year can be costly. However, if you pair a solid credit card with complimentary score reports, it can be very easy for you to monitor your credit while also rebuilding your credit history.

Ultimately, everyone wants to earn a higher credit score. Some benefits of higher credit scores include higher credit lines, lower interest rates, and a great approval rate for loans. Higher credit lines are useful for financing large purchases and for covering emergency payments. In addition, lower interest rates help borrowers save more money on interest payments.

To raise your credit score, it’s important to continue making your payments on time and keep a diverse mix of credit accounts. While credit mix is only 10% of your credit score, it can help make the difference between a fair credit score and a good credit score. Adding on, using a high percentage of your available credit can also lower your credit scores. Lenders will view you as having a greater risk of default and will not be as willing to approve your loan application. So by paying attention to your credit score reports, you can gradually build up your credit score. But don’t expect your credit score to rise dramatically in a week – it takes patience and responsible credit usage to see improvements in your credit score.