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How Credit Scores Work!

How Credit Scores Work

A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. For example, people with credit scores below 640 are generally considered to be subprime borrowers . Lending institutions often charge interest on subprime mortgages at a rate higher than a conventional mortgage to compensate themselves for carrying more risk. They may also require a shorter repayment term or a co-signer for borrowers with a low credit score.

Conversely, a credit score of 700 or higher is generally considered good and may result in a borrower receiving a lower interest rate, which results in their paying less money in interest over the life of the loan. Scores greater than 800 are considered excellent. While every creditor defines its own ranges for credit scores, the average FICO Score range is often used.1

  • Excellent: 800–850

  • Very Good: 740–799

  • Good: 670–739

  • Fair: 580–669

  • Poor: 300–579

A person’s credit score also may determine the size of an initial deposit required to obtain a smartphone, cable service, or utilities, or to rent an apartment. And lenders frequently review borrowers’ scores, especially when deciding whether to change an interest rate or credit limit on a credit card.


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