We’re as guilty as every financial writer on the face of the planet: we are always encouraging our readers to know their credit scores. Want to buy a house? Know your credit score. Want to go back to college? Know your credit score. Want to dye your hair three shades of purple and be forever referred to as “Penelope Petunia”? Know your credit score! But even when you know the scores, it can be difficult to understand what those numbers mean in terms of what kind of loans and credit card rates you’ll actually qualify for.
Keep in mind these aren’t definitive – they’re as close as you’ll find in terms of hard line numbers, but every bank, mortgage company and credit card network has its own evaluation processes and while you might think you’re qualified for a better APR, if the credit card company’s guidelines don’t match what another network offers, you could find yourself weighing your options even further.
Most analysts agree there are four groups or classifications when it comes to labeling your credit situation. Credit scores run between 300 and 850 and it’s believed around 65% of American consumers fall in the middle with the remaining folks either scoring considerably lower or considerably higher.
Superb credit scores are those upwards of 775 while good credit is considered anything above 700. Average credit is indicated for those scores between 600 and 699 and in most circles, anything less than 600 is considered either fair or poor.
A superb credit score requires patience, commitment and a focus on maintaining on time payments and incredibly wise financial choices. Folks in this credit sector enjoy incredible credit card rates and mortgages that would make Donald Trump envious. If you’re in the market for a credit card and your scores are this high, consider the American Express family of credit cards. The Visa Black is another strong choice for those with flawless credit histories and who can’t resist a great rewards program.
A good credit rating still leaves plenty of impressive options. If you’re a consumer with credit scores in this range, you too understand the importance of on time payments and you’re rewarded too with impressive interest rates from banks and credit card offers. If it’s a credit card you’re in the market for, consider the Discover network as it offers many choices that run the gamut from cash back bonuses to hotel rewards. Another consideration might be found in the Chase credit card family – and especially Chase Slate.
An average credit score won’t include as many offers as a good or superb rating, but there are still many out there worth your consideration. Before you begin your search, though, make sure things like too much debt or over-extensions on your current credit cards aren’t a factor, as these can easily result in a decline letter in your mail box. Odds are, you’ve missed an occasional payment or perhaps you had too many credit cards in the past. Either way, you’re on your way back up. Consider the Capital One credit cards and there are also some great Visa and MasterCard options, too.
If it’s bad or poor credit you’re dealing with, your absolute best option is to consider a secured credit card. Be sure not to confuse a secured card for a prepaid debit card. Both require an initial investment by you, but with a secured credit card, you’re simply using a savings account or some other financial asset as collateral. In return, the bank or credit card company will issue you a credit card and as long as you maintain your payments and don’t go over the credit limit, your bank won’t pull resources from your collateral. It’s a fine way to rebuild your credit as these types of accounts are reported to the credit bureaus. Before long, you’ll be able to drop the secured feature and transition into a more traditional credit card dynamic.
Another important consideration is the realization that even with more than acceptable credit scores, many consumer are still denied a loan or credit card. This is usually due to what’s known as a DTI, or debt to income ratio. This simply meas a creditor takes into consideration your income, your current responsibilities – which he can easily see through a credit check- and then opts not to extend credit because it’s possible it could become difficult to maintain all of your payments. If this happens to you, your goal will likely be to pay down the current debt. Not only that but once you do and then reapply for the loan, you might even receive a lower interest rate.
Finally and as always, we strongly encourage any consumer to carefully review the terms and conditions the interest rates and what your rights are under any of the several new laws passed in recent years.
- FDIC Investigating Banks Offering Payday Loans – June 20, 2012
- What Are Parent PLUS Loans? – November 21, 2012
- AMEX to Begin Issuing Secure Chip Cards – July 2, 2012
- In an Election Year, CARD Act Crucial – August 2, 2012
- Dimon Will Testify in Senate on Massive Loss – May 28, 2012