There’s just so much of confusion that surrounds the concept of credit scores and reports. And even though a hell lot of information is made available, many times it’s just too contradictory to what people already know.
In all this mess, it really doesn’t come as a surprise when you hear people with good enough scores ask “Is 700 a good credit score?” While you feel like laughing your heart out at the absurdity of the whole situation, you also end up feeling sorry at the sad state of American citizens who’re so bewildered by even the basics of credit scores and reports.
With a suppressed smile, you tell them “Yes, it’s great!” and you see their face light up. Surely, many of you must have been on the other side of this situation, unlike me. But if you’re here and making an attempt to understand your financial position better, this article won’t disappoint you.
Given below are the two basic facts that every American citizen must understand, in order to be better acquainted with the whole concept of credit scores and reports and handle their finances better:
1. Difference In Scales And Algorithms
When you use the credit reports from the leading credit reporting agencies you must keep in mind that there is no centralized method for calculating a credit score from a credit report. The algorithm that companies use to calculate your credit score from your credit report doesn’t only differ from one company to another, many a times it differs from within the company with the credit reporting agency having more than one algorithm to calculate the score. It has been reported that some companies use as large as 49 varying algorithms for computation of various credit scores from the credit reports.
While your credit report is the basis of the calculation of the credit scores, there will be subtle differences between the scores when they are calculated using the different algorithms. The subtle differences, in majority of the cases doesn’t range beyond a few points and you will not be facing a situation where you find that your credit score has been appreciated or depreciated to the above or below ranking respectively. In a negligible number of cases will you witness such a change in the ranking of your credit score?
2. The Interest Rates
It is important that you keep a keen eye on your credit report when it comes to the credit score that you are being awarded. This is especially important, in case you are planning to take out a big enough loan like an educational loan or a car loan in the near future. This is owing to the fact that the higher credit score you have, the lower your interest rates will be and small differences in interest rates, even in decimals can reflect as a substantial difference in the actual payable amount when you are talking about long term high amount loans.
Also remember that small differences (even in decimals) in your credit score can ruin your chances of getting a mortgage in case your score is hovering around 620 which is the cut off according to FICO. Keep an eye on the decimals for this purpose.
Keeping these things in mind will not only keep you at peace but will also help you manage your finances better. After all, when you’re applying for any loan, every point in your credit score can make a big deal of difference, so these tips come in handy for you, for life. Remember them, adhere to them, and you’ll be sailing through a smooth financial life without any complications.
B. Lyttle is a finance expert and a successful and experienced trader. If you’re still wondering “is 700 a good score?” or have any more doubts about credit reports, she recommends that you visit complexsearch.com.