People need what to know their credit score measures in order to understand what a specific number means when buying a home, car, or renting an apartment – and if their rating falls into the “good enough” range.
Lenders use these predictive equations to forecast their future losses on a prospective new account. They approve the application when the expected interest revenue exceeds the projected losses by a safe margin.
Begin by learning what these rating systems measure: future delinquency. Then apply these lessons to determine what your current number means for your next transaction.
The many twists in the answer may surprise you.
What Does Your Credit Score Measure?
A credit score number measures the likelihood that a borrower will be severely past due on at least one account in the next 18 months. Both the popular FICO and Vantage risk models share this objective.
The modeling equations use historical data found on your consumer report to predict future payment behavior. Lenders base underwriting decisions on these forecasts.
Your credit score measures your probability of being severely delinquent on one or more borrowing accounts. The industry defines severely delinquent as being 90 days or more past due.
A lower number represents a higher probability of future delinquency. A higher number translates to a lower probability of future delinquency.
|Number Range||Delinquency Rate|
Next 18 Months
Your credit score measures your expected payment performance over the next 18 months. The start date for counting the 18 months is the day that the lender pulls a copy of the consumer report used to calculate the number.
The consumer reporting agencies update their data regularly to reflect recent changes in your behavior. Therefore, expect a new current 18-month projection each time a lender reviews your file.
Credit Score Number Range Meaning
Credit score number ranges have many possible meanings and implications. This creates a great deal of confusion for everyday people. You can gain a clearer understanding by breaking the issue down into three parts.
- Generic equations predict future delinquency on any trade (see above). Lenders are concerned with your future performance on the specific transaction. Therefore, expect adjustments.
- Other factors enter into an underwriting decision. For example, your employment history, income, and other factors come into play.
- Lenders use a variety of models and model versions. Each has a unique numerical distribution within each range. For example, FICO and Vantage each have slightly different interpretations.
The highest credit score in the number range is 850. This means you are 87 times less likely to be severely delinquent than another person on the opposite end of the scale.
The highest score of 850 means enjoying a more favorable response from companies that might pull a copy of your consumer report.
- Higher acceptance rates on applications
- Lower interest rates
- Lower insurance premiums
- Smaller deposit requirements for utilities
- More employment offers
Many people ask what a good credit score number to have. Everything is relative because of the many shades of gray in the industry. Begin your analysis in the good range for FICO or Vantage and then make an adjustment up or down for the type of transaction or your age.
A good credit score to buy a house has one meaning. Mortgage lenders use unique underwriting criteria that affect the answer to this question.
- They pick the middle number and ignore your high and low. Mortgage companies pull all three versions of your consumer report (Equifax, Experian, TransUnion) because of the large principal amounts involved.
- Loans to value ratios affect mortgage-underwriting decisions. People who can make a large deposit can get by with a lower rating than those with less money down.
- Debt-to-income (DTI) ratios are another important home loan qualifier. Buyers with high front and back-end DTI need a higher rating than those better able to afford the monthly payments.
A good credit score to buy or lease a car has another possible meaning. Automotive finance companies use two unique factors when making an underwriting decision.
- Auto lenders use different scoring equations. Overlay models adjust for the payment behaviors of drivers. Instead of predicting future delinquency on any borrowing account, they forecast behaviors on car payments only.
- Lenders can repossess your car after default. Many have aggressive repossession operations that enable them to recoup losses quickly. This enables them to approve consumers with lower ratings.
A good credit score to rent an apartment has yet another meaning. Many young adults begin life outside of their parents’ nest by renting rather than buying a home. As you will see in the next section, this means starting out with a lower number.
Property managers need to keep apartment building full – without experiencing expensive evictions. Therefore, expect them to compensate in two possible ways.
- Using an alternative report and scoring system that provides information about unbanked or credit invisible tenants.
- Require larger security deposits or upfront rental payments for tenants with poor ratings.
A good credit score number for a 19, 21, or 25 years old has yet another wrinkle. Average ratings begin at the low end of the scale increase as we age. This chart depicts average ratings by age range.
|Age Range||Average Number|
|18 – 24||630|
|25 – 34||628|
|35 – 44||629|
|45 – 54||646|
This chart suggests that a good benchmark for people aged 18 to 44 is 630. Notice that this places many young adults in the poor range for both FICO and Vantage. This illustrates two important factors in ratings.
- Start early to overcome this drawback. A short length of history dampens ratings. It takes years to build sufficient history.
- Any new activity also dampens ratings. Young adults need to borrow money more frequently as they establish themselves in the world.
The lowest credit score in the number range is 300. This means you are 87 times more likely to be severely delinquent than someone on the opposite end of the spectrum. This represents an extremely poor risk profile.
A 300 credit score means that lenders will decline most applications. Property managers may require a larger security deposit and several months of rent in advance. You may need a cosigner or other form of security.