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Understanding the Credit Score Scale

By Ruth Racey
Published: Friday, October 2nd, 2009

The credit score scale that is based upon the FICO scoring system ranges from 300 to 850, with 300 being the lowest value and 850 being the highest value. Each consumer must strive to reach a FICO score of at least 750 to be considered as a good borrower.

Needless to say, having a score higher than 750 is sure to impress any lender, credit card issuer or insurer. With a rating above 750, any lending company, card issuer or insurer would be willing to have you as a customer.

On the contrary, a score of 700 can be considered as average or fair. Some lending companies will grant credit for customers with a fair score although the rates can be somewhat higher than customers with good or excellent scores.

However, having a score below 700 can be considered as bad rating. With such a score, most lenders would consider you as a high risk borrower and may not be willing to approve the application.

There are disadvantages in having a low score. First, it is more difficult to apply for credit. Second, it is also more difficult to negotiate with potential lenders. Obviously, if you have poor standing, it would be harder to ask a lender to lower the interest rate and fees. In worst cases, the application can get declined by a lending company causing more damage to your score.

Individual ratings are based on several factors which include the age of credit history, payment habits, credit to debt ratio and the types of credit availed. How long you have established your credit history is a big factor. If you possessed a credit card since you were in college, it can surely add up to your creditworthiness provided you are paying your card bills on time.

Having different types of debt in your name shows your capability of managing finances. Some people feel that owning a number of cards can boost their FICO score. However, aside from owning credit cards, you can prove your creditworthiness by managing different types of accounts like a car loan, personal loan and home loans. If your credit report shows updated payments on each of your loans and credit cards, you should have no problem maintaining a high score.

Staying within credit line is another factor to watch out. Remember that your credit-to-debt ratio can affect your final FICO score. When using your card, it is recommended to stay within 50% or lower of the given limit. By keeping a larger percentage of your credit line free from debt, your creditors would be more confident in your ability to manage your finances.

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