The information contained in your credit report is used to calculate your credit score. Most lenders and property owners base their decisions exclusively on your credit score and do not bother to look at your actual credit report.
What Is a Credit Score?
A credit score is a mathematical model consisting of numerous variables used to estimate one’s credit risk. The most commonly used model is called FICO® (named after its creator, the Fair Isaac Company). Everyday, the FICO credit score is used to evaluate millions of people who are applying for some type of financing.
Your FICO® credit score is used to evaluate your creditworthiness by giving you a certain amount of points based on the information contained in your credit report, in particular, how much debt you have and how you pay your debt. The highest score a person can receive is 900; the lowest is 300. Very few people, even those with perfect credit ratings and no debt have a 900 credit score. About the best one can ever achieve is 850.
Your FICO credit score grades your credit as being excellent, good, fair or poor.
| If your FICO credit score is | Your credit rating is considered to be |
|---|---|
| 750 or higher | Excellent |
| 660 – 749 | Good |
| 620 – 659 | Fair |
| 350 – 619 | Poor |
If your credit score falls in the “excellent” range, you probably will be offered the lowest interest rate available provided that you do not have too much debt.
If your credit score falls in the “good” range, your loan will probably be approved but at an interest rate two or three points higher than those with excellent credit.
If your credit score falls in the “fair” range, you might have difficulty getting credit, but even if you do get approved for financing, your interest rate will be substantially higher than those with excellent credit scores, meaning you will pay $200, $300 or even $400 more per month more on an average 30-year mortgage and about $100 more per month more on a car loan than people with excellent credit scores.
If your credit score falls in the “poor” range, you probably filed for bankruptcy or have defaulted on debts. It will be difficult for you to obtain credit; however, if you do obtain credit it will be at extremely high interest rates.
Those with poor credit are often the victim of cheats and immoral companies who prey on consumers who can’t get traditional financing, charging them outrageous interest rates, fees, and such for auto loans, credit cards and payday loans. Those with poor credit definitely need to improve their credit scores immediately!
Your credit score isn’t the sole determining factor in loan approval. It is used to determine the interest rate you will be charged. It should be noted that not every single lender uses the FICO® model; however, the models they use are very similar to it. Also, lenders vary in what is important to them in terms of loan approval. One lender might place more weight on payment history, while another places more weight on income. One lender might consider a 700 credit score to be very good while another only approves applicants with a 750 credit score.
Editor’s Note:
We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).
If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.
But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.
The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.
This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.
Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit
Posted by Christian C Culpepper