What Credit Score Numbers Mean

By Robert Banks

Credit score numbers or FICO (Fair Isaac Corporation) scores can be confusing because few people actually know what the ratings mean. When you're told you have a good rating, what does it mean and is that the best? Where do the numbers come from? These are important questions that can help improve your financial well being, and best of all, can save you money.

The rating you are given is calculated based on the information in your credit report. Important factors include the ratio of the credit you are using to the credit available to you, so if you pay down your card balances it will have a positive affect on your report, and thus, your score. Other factors include the age of your accounts, unpaid debt and late payments. Having a varied history using different types of accounts (for instance, both cards and loans) and on time payments will help build up a healthy credit score.

Companies that ask to check your financial history will send away for your information and be sent your credit score numbers. Many different companies – rental applications, employment applications, lenders, and insurance companies – will ask for your credit score numbers. Each lender then decides what your credit score means to them. They will use it to help them decide whether to accept your application, and then what interest rate to offer you. This means that with a lower rating, you'll be offered lower interest rates, and thus you save money.

Generally speaking, FICO scores run from the 300 point range all the way up to 850 points. While there are not official terms used to reference ranges of numbers, you will typically hear people refer to scores as bad, acceptable, good, and excellent. .

People with bad ratings (below 584) will have a hard time getting accepted for many things as they may be considered a greater credit risk but it does not mean that they can't get credit. The loan application process will probably be lengthier and the terms may be less appealing – highest interest rates.

Acceptable scores will generally find they are accepted for things, but will still have high rates. Good scores will generally always be accepted, even for big things like mortgages, and may even be offered the best interest rates on some things, but not everything.

Excellent ratings (720 and above) can do anything, and will always be offered the best rates. With an excellent rating, you will also get a lot more flexibility out of companies. Lenders will often allow you to borrow more than 80% of the value of your home, and may not require private mortgage insurance. You're likely be able to get a home equity loan or line of credit with an interest rate equal to the prime rate, or even below it. You can also look for a credit card that will reward you with a low interest rate. While many cards charge 18%, you should be able to obtain a rate under 10%.

As you can see, your credit score numbers can have a large impact on your finances and they're really worth improving on.

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