Credit scores play a crucial role in lender’s decision to offer credit. Lenders use credit scores to evaluate a consumer’s creditworthiness and assess whether or not the borrower will repay in a timely manner. A credit score is usually between 300 and 850, and most consumers have credit scores that fall between 600 and 750. A credit score between 700 or above is generally considered good, and a score of 800 and above is considered to be excellent.
In 2020, despite the coronavirus pandemic, the average FICO score in the U.S. is 710, according to Experian data from Q3 2020. Texas saw an increase of eight points from 680 in 2019 to 288 in 2020. This increase in the past 10 years shows that individuals have improved their overall debt management. Data also shows that this growth can be attributed to changes in credit utilization, credit card debt and delinquency rates, which have been improving even before the start of the pandemic.
How Credit Scores Are Calculated
FICO® score range:
- Excellent: 800 to 850 – Applicants with scores in this range are at the top of the list for the best rates from lenders.
- Very Good: 740 to 799 – Applicants with scores here are likely to receive better than average rates from lenders.
- Good: 670 to 739 – Only 8% of applicants in this score range are likely to become seriously delinquent in the future.
- Fair: 580 to 669 – Applicants with scores in this range are considered to be subprime borrowers.
- Poor: 300 to 579 – Credit applicants may be required to pay a fee or deposit, and applicants with this rating may not be approved for credit at all.
VantageScore range:
- Excellent: 781 to 850 – Applicants most likely to receive the best rates and most favorable terms on credit accounts.
- Good: 661 to 780 – Applicants likely to be approved for credit at competitive rates.
- Fair: 601 to 660 – Applicants may be approved for credit but likely not at competitive rates.
- Poor: 500 to 600 – Applicants may be approved for some credit, though rates may be unfavorable and with conditions such as larger down payment amounts.
- Very Poor: 300 to 499 – Applicants will not likely be approved for credit
Your credit score will usually determine the size of an initial deposit required to buy a property, rent an apartment, or obtain a smartphone, or how much or how little you might pay for any lines of credit you take out. So, check your current credit score. Which range does it fall? Remember, the higher your credit score, the better your interest rate will be and the higher the chance that you’ll get your mortgage application approved.
What affects your Credit Score
Experian, Equifax, and Transunion are the three major credit reporting agencies in the United States. These agencies report, update, and store consumers’ credit histories and generally, these are the five factors they use to evaluate when calculating your credit score:
What affects your FICO® Credit Score
- Payment history – 35% of a credit score
- Total amount owed – 30% of a credit score
- Length of credit history – 15% of a credit score
- Mix of credit types – 10% of a credit score
- New credit – 10% of a credit score
What affects your VantageScore Score
- Total credit usage, balance and available credit: Extremely influential
- Credit mix and experience: Highly influential
- Payment history: Moderately influential
- Age of credit history: Less influential
Of course, many factors influences your credit scoring – characteristics of the borrower, the current economic situation, the amount of the loan applied for, its purpose (i.e. buying a house) and the type of collateral. These factors will determine the financial standing of the borrower and equally important are the borrowers past financial behaviors such as late payments, no credit history, and exceeding credit card limit just to name a few.
Why Is a Good Credit Score Important?
Higher credit scores can make lenders see you in good light that you are able to repay as agreed. However, it’s important to note that lenders can set their own definitions for what they consider to be a good or bad credit score as they also have set the type of borrower that they want to attract. But all in all, a good credit score will help you achieve your financial goals easier like qualifying for mortgage loan, whether a landlord will agree to rent you an apartment, and getting hired or promoted.
How a Poor Credit Score can affect you?
A credit score below 669 is considered to be either fair or bad based on the FICO® Score range of 300 to 850. The individuals falling under this category or range id often referred to by lenders as ‘subprime’, which includes borrowers who may have a hard time repaying a loan. Think of a bad credit score as a failing grade whenever you take a test that uses numerical ranking to assess your performance.
Having a poor Vantage Score (between 300 and 499) could mean the applicant will not likely be approved for credit. Also, a credit score between 500 and 600 may be approved for some credit, though rates may be unfavorable and with conditions such as larger down payment amounts.
Bottom line, having a poor or low credit score will result to:
- Higher interest rates on your home mortgage
- Trouble getting a mortgage (Check 2021 Minimum Mortgage Requirements in Texas)
- Difficulty getting approved for an apartment or cellphone contract
- Difficulty obtaining business loan
- Risk of being denied credit / loan application
- Risk of being turned down for a job
- Higher auto insurance rates
How to Improve Your Credit Score
If your current credit score rating is low, take time to review your credit score and identify the cause. It could be a missed payment or a there’s a carried balance past your bill’s due date. You can improve your credit score and loan approval odd so, to help you improve and achieve your target credit score, consider the credit building tips below.
- Make on-time payments
- Consider setting up autopay to ensure on-time payments
- Pay your bills in full every month to reduce your utilization rate
- Don’t open too many accounts at once (inquiries temporarily reduce your credit score by roughly five points)
- Pay down revolving debt such as credit cards
- Apply for a credit-builder personal loan.
- Get a free yearly credit report to know your current credit score
- Check your credit report and fix the errors.
About ApexPro Real Estate
ApexPro Real Estate Group is a full-service real estate brokerage specializing in single family and attached residential properties throughout Houston and the surrounding areas. We are a privately-held small business that brings together top agents, cutting-edge technology, and unparalleled service to help clients throughout Houston to buy and sell real estate — and enjoy themselves every step along the way. Our client reviews exhibit our dedication to help our clients extends beyond the closing table and we would love to earn your business.