Finance

How Understanding Credit Score & Its Types Make You Smart?

The credit score is one of the most underrated factors of our times. Many often take it as a scale to measure their eligibility for loans alone. But the truth is that there is more to it where it comes from. It is one of the most vital factors that determine how well is your financial situations and it follows throughout our life.  So it is time we stop being ignorant and learn to evolve with the modern world. This article will provide you with some of the interest facts about the different credit score types and its importance.

What is a Credit score?

Understanding what a credit score is becoming a crucial factor to get a better grasp of its effective usage. A credit score is a three-digit number obtained from the information based on the credit report of an individual. Once all the aspects of the report are considered a mathematical formula is applied to get the final score which defines your financial status. Credit score defines more than just defining the loan eligibility it plays a great role in terms of determining the insurance rates and its rate of interest. This could become quite a trouble in case of bad credit score while planning of settling down or to buy a housing or auto insurance.different credit score types

In addition, the credit score also makes a greater impact in terms of employment opportunities. Today majority of the employers tend to check the credit score of their new employees. And the reason behind such an act is that these employer organizations consider the credit score to be the indication of the responsibility of an individual. Though there are many factors capable of influencing such score yet it remains to be a more important factor of consideration.

How to find it?

This will be the next big question, as many tend to look for the reliable sources for getting their credit score validated. We live in the modern digital era which makes getting informative much easier than ever. It is also advised that one has to make an annual routine check on their credit scores to be more financially secure. This gets easier with the Internet all it requires is tapping into the right source to get the best results.

Credit score ranges

Credit score falls into two simple categories either as good or bad. So it is important for anyone to know where they stand. This could be done with the assessing their score (with numerical ranges) to get a clear idea about it.

The term “good Credit score” would prove sufficient in meeting the threshold limits in term so insurances and downsizing the interest rates.  However, this idea of good credit score is not an exact value but it has its ranges. A credit score between the values of 700 to 749 is considered “good” by the experts.

While on the other hand there comes a set of limits for poor credit scores that could greatly affect your financial plans on a big time. So it is important for anyone to know where they stand in the scale of good to bad in order to make right financial decisions.  In general, the idea of bad credit score ranges from 600 and below.

Here is the general idea of credit scores ranging from Bad to Excellent for the better understanding of people

Nature of Credit score

Value

Bad

600 and  below

Poor

600 to 649

Average

650 to 699

Good Credit

700 to 749

Excellent

750 and higher

Credit score types

Calculating credit scores is never easy given there is more than one type to it. This includes FICO; vantage scores, PLUS score, Trans Risk score, Equifax score. Among these types, FICO score is more commonly used by all money lending organizations. So it better to keep on eye of this score to see how your credit values are calculated by your card issuer. It ranges from 300 to 850.different credit score types

Vantage score:

It is one of the most popular free versions provided by many of the financial organizations. It has its own differences in terms of calculating rent and utility payments, paid off collections. It also considers how recent a credit account was created. It was created by credit bureaus, Experian, Equifax, and Transunion.

However, each of these credit bureaus has its own set of credit score system which is as follows.

PLUS score:

It belongs to the Experian scoring model; it ranges from 330 to 830 it is not used by any money lending organizations.

Trans Risk score:

As the name indicates it is used to predict the risk of the credit value.  It belongs to Transunion and it is based on its own credit reports. It ranges from 100 to 900.

Equifax Score:

This belongs to Equifax and is designed only for educational purposes. The score ranges from 280 to 850. It is not used by any money lenders similar to that of PLUS score.

As you can see that there are different credit score types with different scoring systems and each has their own set of ranges it gets difficult to prefer the best one. However, all of these ranges more or less denote the common numbers that give a general idea about these scores and their worthiness. This could come quite handy especially when people are working to improve their credit score. Also remember that among all such types, FICO score is the one that comes little closer when dealing in terms of loans, credit cards or mortgages.

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Vivek

Vivek is a Content Executive & Outreach specialist for Blogs. He is also a writing enthusiast fond of healthy and happy living. He believes Knowledge gets better when shared. So he founded The Mindful Bytes as a platform for people who love to read and write anything that has to do with Health, Tech, Business, Finance, and Lifestyle.

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2 thoughts on “How Understanding Credit Score & Its Types Make You Smart?”

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