Good credit score vs. Bad credit score: 3 signs it’s time to worry

Aware of the many doubts surrounding credit scores, we prepared a guide to know the difference between good credit scores and poor ones. There is also plenty of information on credit score range and how to make it better. Keep reading to understand everything about it!

What is a good credit score?

calculating a credit scoreStarting with the basics we have to clarify exactly what is a good credit score. It’s a number ranging from 300 to 850 that shows how your finances are doing. Companies, such as banks, credit card operators and others use this number to understand the possibility of payment from a client. 

Scores above 700 are what we call good credit score. However, it’s common to have a bit of difficulty to reach this number. Most people fall between 600 and 750, enough to get personal loans and credit cards. But you might want to pay attention to your score if you’re planning on making a larger investment with scores lower than 700. 

By the way, those who reach above 800 are considered excellent. 

How is a credit score calculated?

This is one of the most important credit information a person could have. Everything is based on metrics created by the Fair Isaac Corporation (FICO), but we’ll explain more about this specific score later. 

Basically, financial institutions use any credit information available about a person to know their worthiness. Knowing whether someone has a history of paying on time, getting loans and making debt, the company can take its decisions. 

Doing a credit check is a rather simple process. Anyone can request a free report from major reporting agencies. However, even this card can be hard to understand without the proper knowledge.  

5 factors that impact on your credit score

Search the internet for a few minutes and you’ll find out there are a few types of credit score. Some creditors will take into consideration current economic events that might impact people’s ability to pay on time. Others have personalized credit scoring programs as well. But the most important details about one’s financial lives that certainly will impact on scores are below. 

1. Timely payments

When you decide to lend money to a friend you’ll certainly want to know if they paid others before you on time. Creditors are curious about the same thing: what risk is there of someone defaulting on their payments? 

To know that, your payment history will be part of your credit score. That means that anyone who wants to get better loans or credit card conditions should pay their bills on time. Things like filing for bankruptcy or missing payment dates could hurt your finances more than you imagine, since they’ll make you have a poorer score. 

2. Amount of debt

Alright, it’s nearly impossible to have a perfect payment history in the twenty-first century. That doesn’t mean your score is doomed, at least as long as debts are under control. Lenders consider that owing more than 30% of available credit is a problem. 

Our tip is to keep track of your spending, specially on credit card shopping and other apparently “small” deals. Did things get out of hand and you have a maxed out card? Don’t worry, you can still balance it out with timely payments. The closer you get to paying off your debts, the better it is to raise your scores. 

3. Rarely applying for credit

How long has it been since you last applied for credit? Doesn’t matter if it’s a personal loan, credit card or credit count, they all count for your current scores. Applying for such financial services sparingly is a pro tip to keep your score high. So, when there’s an investment really worth making, you can get the best interest rates in the market. 

That doesn’t mean you should have no credit history at all! Banks and creditors consider paid loans a plus. The real problem is applying for multiple loans at the same time or having too much unpaid debt when trying to get a new approval. 

4. Careful credit card use

Credit cards can be friends when it comes to quick purchasing, but they’re the enemy of great credit score a lot of the time. Be mindful of their use, those who have many cards should attempt to watch out for unexpected fees and forgotten payments that could hurt your overall score. 

Once again we remind you: reaching your credit limit on a card is one of the worst decisions you could make. 

5. Other credit reports

Creditors will want to know one’s credit mix when figuring out their scores. Keeping more than an investment at a time, such as a personal loan, car loans and home loans, shows organization and possibility to manage your finances well. At least while they’re all paid timely. 

What is a good FICO score?

FICO score is one of the most used credit scoring systems in the USA. According to FICO’s website, it is currently part of 90 of the 100 top lending institution’s scoring system. The corporation introduced this type of scoring back in 1989 and uses the system ever since, although with some updates. 

To calculate such a relevant score, FICO uses its own formula to determine a value ranging from 300 to 850. According to the company, 690 to 719 is considered a good credit score. Alas, the higher the result, the better. There are also scores provided by this company specific for card loans and credit cards ranging from 200 to 950. 

There are a few versions of the FICO score that different creditors can use according to the situation. FICO 8, for example, is around since 2009. While there is a new version, more updated and modern, number 8 is still the most common in the financial world. 

What is a good Vantage score? 

Vantage Score is a system created by the tree major financial bureaus in the US, namely: 

  • Experian;
  • TransUnion;
  • Equifax. 

The algorithm that comes up with scores came around in 2006 and quickly became one of the most important for creditors. Despite having a different scoring system in the beginning, latest revisions of Vantage now use a scale of 300 to 850, making it easier to compare with FICO. 

Similarities don’t stop there, since the closer you get to 850 the better your score will be. To be able to compete with the older, more common system, Vantage is offered for free to creditors some times. 

What is a poor credit score (and why it matters)? 

Knowing what a good credit score is might help, but we must also warn you: if you haven’t checked your numbers in a while, there’s a chance you’re suffering of a case of bad scores. Whenever the number is between 300 to 600 you must be wary: it’s pretty negative to an issuer or creditor. 

Which means, you might be missing some of the best interest rates in the market for any number of financial deals. From mortgages to loans to buy a car, there are many things that can be negatively influenced.  

Signs you have a poor credit score

How do you find out your credit score is below average? There are a few telltale signs you must watch out for in your financial life. We selected the most common ones below so you can start working on building better credit. 

1. Previously rejected personal loans 

A great score will get you the best personal loans for the lowest interest rates, that’s a given. A half decent one will still get you a loan, but with higher rates and less attractive tenures, which is alright in its own way. But you must worry when the requests are denied. 

Once a lender rejects your application they are obligated to explain why along with a copy of a credit report. This will show you quickly the biggest problems, no matter which scoring system the lender uses. However, it’s recommended you check your scores before applying to make sure you are getting the best offer possible. 

2. Rejected or closed credit card

Even if you already have a credit card you’re not safe from the effects of bad scores. Card issues do run checks from time to time in order to review limits and conditions. Anyone experiencing a dip in their credit scores will also notice a decrease in credit card limits. 

Worst case scenario, you’ll have your credit card appliance rejected or a current card closed. As soon as you notice a change in your card conditions check your score. Similarly, issuers will deny applications for lower APR (annual percentage rate) for this reason.

3. Contacts from debt collection agency

Everyone forgets to pay a debt from time to time. Maybe it’s a gym subscription or old medical bills, something reasonably small and simple can snowball into a huge problem once debt collectors are involved. 

As soon as you’re contacted by the dreaded collector’s agency it’s a red flag: your credit score is hurting badly. But be wary of the collection notice: scams often use forfeit bills to scare law abiding citizens into paying them. The best way to find out is checking your score and calling your bank or issuer to make sure the complaint is valid.

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