When it comes to finances, few things are more important as your credit score. Those three numbers can make all the difference when you are applying for a mortgage or trying to get a decent interest rate when refinancing a loan. FICO credit scores, are one of the most widely used scores, with scores ranging from 300 to 850. The higher your score is, the better the state of your credit. A credit score can tell you a lot about your finances, but there are some preconceived notions out there that are not true. Here are a few things you may not know about credit scores:
Credit bureaus evaluate your score
A credit report from one of the three major credit bureaus – Experian, Equifax and TransUnion – can give you an overview of your credit history, but these bureaus will not judge, evaluate or give lenders advice about your credit score.
There is only one credit score
FICO is a very common credit score provider, but it is not the only one. VantageScore is another and though they use the same model to evaluate scores, they are different. In fact, a credit score from one lender may be different from another lender. Although your score is important for you getting qualified for loans, you should be more concerned with the range your score is in, opposed to the exact number you get. The range consists of several categories:
- Excellent: 720 and above
- Good: 680-719
- Average: 620-679
- Poor: 580-619
- Bad: 500-579
- Terrible: Less than 500
Once an account is paid off, you should close it
Whittling one of your credit card balances down to a manageable level or paying them off is great, but you do not want to close this account. You may think that by closing out an account you will stop yourself from spending and you will be done with it, but this will actually negatively affect your credit score.
When you have an account with a low balance, you will have a good credit utilization ratio. This is the percentage of how much of your balance you use compared to your overall limit. A low balance will mean you will have a smaller ratio, which helps your credit score. By closing an account, your ratio will increase and your score could take a hit.