Both FICO and VantageScore range from 300 to 850. Most people have credit scores between 500 and 800. Although it is possible to have a perfect credit score, it is quite rare for someone to achieve a score higher than 850 common to have the worst credit score of 300.
Although FICO and VantageScore use the same numerical range, they divide the spectrum differently. FICO rates debt from poor to excellent, while the VantageScore ranges from deep subprime to super prime. Those ranges also do not match numerically. So, for example, if your credit score is 670, that’s prime on VantageScore, but it’s only fair on FICO. This can make achieving a good credit score difficult.
What is a good credit score?
According to the FICO range, a good credit score starts at 700. Most consumers have scores in the 600s. In fact, it wasn’t until last year that the national average FICO score surpassed 700 for the first time in rating history. And while the credit score table above says that 700 is at the bottom of a good credit score, FICO analysts themselves describe it differently.
“A score of 700 is considered very good credit,” explained Ethan Dornhelm, FICO Vice President for Scores and Research. “Consumers will likely qualify for the credit they want on favorable terms”
So if you’re aiming for a high goal, 700 might be a good first target. Most lenders will approve you with a FICO score of 700. You must also qualify for at least a 700 median interest rate. However, keep in mind that smaller lenders and financial institutions like credit unions can have higher minimum requirements. So if you’re comparing lenders to find the best deal, you may find lenders that have a minimum requirement of 720 on at least some types of loans.
What is a bad credit score?
In most cases, any score below 600 means you may have difficulty getting approved for traditional financing. But that doesn’t mean all doors will be closed to you when it comes to qualifying for loans. You just need to find a lender that is willing to work with consumers to lower credit scores.
Depending on the type of credit you need, there are also programs and options designed specifically for people with bad credit. For example, you generally need a FICO score of 620 or higher to qualify for a traditional fixed-rate mortgage. But you can qualify for adjustable-rate mortgages as long as your score is above 600. But even if that doesn’t work out, there’s still hope. Federal Housing Administration (FHA) loans backed by the Fair Housing Authority are designed for people facing financial challenges, such as low credit. First-time homebuyers have been approved with scores as low as 560.
prime vs. subprime
The term “subprime” became a buzzword around the 2008 mortgage crisis that helped spark the Great Recession of 2009. The use of prime in this case does not specifically refer to the VantageScore in this case. Instead, it generally refers to anyone with less than fair credit.
Mortgage lenders heavily relaxed their lending standards in the early 2000s. Basically, they started approving mortgages even for borrowers with bad credit. Although these borrowers could not qualify for traditional fixed-rate mortgages, these relaxed standards meant that borrowers could qualify for adjustable-rate mortgages.
When the housing bubble burst and home values fell, mortgages reversed. Borrowers owed more on their loans than the houses were worth. Subprime subprime borrowers with bad credit were the hardest hit and often the first to default. Lenders tightened their endorsement standards, which is why 600 is generally the limit unless you have an FHA repaid loan.
However, this serves as a warning to borrowers. Just because you can get approved for a loan based on a good credit score, doesn’t mean you should get that loan. So while it’s important to find a lender who’s willing to work with you if your credit score is low, always consider your budget and ability to repay debt before signing a loan agreement.
Increase your credit score
Knowing how your credit score is calculated means it’s fairly easy to figure out how to increase your score. But increasing your score takes time. In most cases, you can instantly improve your score. The only way to get quick results is through credit repair, which can improve your score in as little as 30 days. But that only works if there are mistakes on your credit to correct. If you legitimately incurred a lot of negative items on your credit report, then it’s going to take some work to improve it.