A credit score is a numerical representation of your ability to pay credit and/or debt over time. It is used by lenders to assist them in determining which loan programs and interest rates can be made available to you as a potential borrower.
There are three major companies that issue credit and background information: Equifax, Experian, and TransUnion. They do not check the accuracy of the information; rather, they simply accept the information that is reported to them generally on a monthly basis.
When you apply for a mortgage, a tri-merge credit report will be requested from a credit reporting company. This company pulls together a credit report from all three bureaus electronically.
Along with the information, the credit reporting company receives a numerical score. The score represents, among other things, a composite of your credit history, employment, and ability to save.
If your credit score is high, the lending industry may reward you by requiring a smaller amount of paperwork to prove you are creditworthy. Your interest rate and fees are also based on the level of your score.
Credit Score Guidelines
Excellent Credit
Credit scores of 720 and above
- 5 trade credit lines (credit cards, auto loans, mortgages) each having been open for at least 24 months
- All accounts have been paid as agreed
- No public records of bankruptcy, foreclosure, serious past due accounts, or collections within the last 10 years
- Low current credit balance relative to maximum available credit limit
- Minimum number of credit inquiries
Very Good Credit
Credit scores between 680-719
- 5 trade credit lines (credit cards, auto loans, mortgages) have each been open for at least 24 months
- All accounts have been paid as agreed
- No public records of bankruptcy, foreclosure, serious past due accounts, or collections within the last 7 years
- Low current credit balance relative to maximum available credit limit
- Minimum number of credit inquiries
Good Credit
Credit scores between 620-679
- 5 trade credit lines (credit cards, auto loans, mortgages) have each been open for at least 24 months
- Most accounts have been paid as agreed, with only occasional late payments
- No public records of bankruptcy, foreclosure, serious past due accounts, or collections within the last 10 years
- May have significant current credit balance relative to maximum available credit limit
- Several recent credit inquiries
Fair Credit
Credit scores between 580-619
- 3 trade credit lines (credit cards, auto loans, mortgages) have each been open for at least 24 months
- Most accounts have been paid as agreed, with only occasional late payments
- No public record of bankruptcy, foreclosure, serious past due accounts, or collections within the last few years
- May have significant credit balance relative to maximum available credit limit
- Several recent credit inquiries
Poor Credit
Credit scores 579 and below
- One or more accounts have not been paid as agreed
- May have had a bankruptcy, foreclosure, serious past due accounts or collections
- High number of recent credit inquiries
- Proportion of revolving balances to revolving credit limits is too high
Credit Score Tips
- Pay all your payments on time.
- Don’t apply for new credit unnecessarily. Every time you sign and return a new credit card application, even just at a store, an inquiry will be generated and that can reduce your score.
- If you must maintain credit card balances, try to keep them at a level that is 40% - 50% of the maximum credit limit. In other words, if the credit limit is $5,000, try to keep your running balance below $2,000.
- Consolidating all your credit cards can hurt your score.
- If you get into a dispute over a small amount, pay it and move on. Having one or more collections, even if they are small, can hurt your score.