Credit Score FAQ

Frequently Asked Questions & Answers About Credit Scores

With our continuous efforts to help better educate our customers about the importance of your credit score, our credit counselors have put together a set of common questions we are asked by consumers below. If you have a question that isn’t answered below, please feel free to contact us and one of our representatives will get back to you and help answer your question.

Your credit score is a calculated number that is a strong indicator of how likely you are to repay debts. Creditors will use your credit score to make decisions to extend credit to you, and under what terms or not to extend credit to you.

There are many real-life examples to choose from, nothing bigger than when your bank looks at your credit score before approving you for a mortgage. If they can approve you, your rates is directly related to your credit score – higher scores = lower rates, and lower scores = higher rates.

Credit scores doesn’t have anything to do with how much money you make, an individual with a low income might have excellent credit scores, and someone with a higher income might have low credit scores. In addition, your credit score is not tied to your bank or your creditors; banks and creditors will pull your credit scores to help them make informed decisions about whether or not to approve you for loans and/or credit, the scores are supplied by third-parties, not the lenders themselves.

Your credit score is based on a number inputs, between the Fair Isaac Corporation (FICO) and the major credit bureaus (Experian, Equifax, and TransUnion) your score is calculated based on their formulas. Scores are based on data about your past and current financial attributes that are reported by your existing and past creditors. Factors like how long you’ve held credit, how much debt you have, and your track record for paying back your creditors are all a part of the calculation. The exact formulas that the credit bureaus use are not publicly available.

Credit scores are constantly changing due to your actions, it is common for your credit score to change month-to-month, or day-by-day as information is reported by creditors. Creditors report information about your payments and financial obligations to the credit bureaus constantly.

Currently, there are a few different types of credit scores. However, the only important score is your FICO credit score.

FICO scores also have different types that are considered in the mortgage, auto, and insurance industries, and FICO is the major factor when it comes to your credit scores. When lenders start referencing qualifying credit scores, they are referring to your FICO score.

FICO score ranges from 300 at the lowest end all the way to a perfect score of 850.

FICO scores were developed by Fair Isaac Corporation and most lenders use your FICO score. You can purchase a FICO score through myFICO.com. As a consumer, if you have purchased your credit score from anywhere else, it is not your FICO score. All of the consumer credit bureaus have their own version of credit scores:
- Equifax = BEACON
- Experian = PLUS
- TransUnion = EMPIRICA
All three credit bureaus – Equifax, Experian, and TransUnion – use different formulas to calculate your credit score. Each credit bureau includes different information in your credit report and not every creditor reports to all three credit agencies. With that said, one or two of your credit reports may contain credit history that the others don’t.
When it comes to something relatively small like a personal loan or a credit card, there is a wide-range of credit scores that are considered reasonable. But when it comes to a mortgage, lenders will require your average FICO credit score come from all three credit bureaus and is no less than 640. A 640 score is at the low end of fair credit, which will result in a high interest rate. If want to understand what constitutes a bad score versus an excellent score, the following ranges are the typical ranges of credit scores:

Excellent: 781 and above
Good: 661-780
Fair: 601-660
Poor: 501-600
Bad: 500 and below

If you are thinking about looking to buy a new home, your credit report will be reviewed thoroughly. Your credit score is only one of the factors that go into qualifying for a mortgage, and if your credit score is too low - less than 640 - you will be denied by most mortgage companies.

There are exceptions made for individuals who are getting a VA loan or FHA loan. FHA loans only require a 580 credit score, and VA loans have no credit score minimum for mortgages. However, the FHA and the VA don’t actually provide loans, they provide insurance to the financial institutions that actually provide the loans. They provide risk mitigation in case a consumer defaults on their mortgages.

With that said, consumers most likely won’t be approved for a VA or FHA loan with a credit score below 620. If you want to qualify for a mortgage, it is safe to say that you’ll need a credit score of at least 640. The best rates are available with a 720 credit score or higher.

Super Prime (740+)
Prime (680-739)
Nonprime (620-679)
Subprime (550-619)
Deep Subprime (<550)