What Your Credit Score Range Means and What it Costs

Unfortunately, in our fast paced technology centric society your credit score range means everything to

your finances and possibly your quality of life. Lenders, banks, employers, insurance companies and a host of others look at what credit score range you fall within. Lenders and Banks use this to determine if they will actually make you a loan and what interest rate you will receive. Employers also look at your score as a measure of how good of a person you are, and whether you are trustworthy with maintaining the companies assets and may actually use this to determine whether to hire you or not. Insurance companies, as well, use your credit score range to determine whether to insure you and to determine how much to charge you for your premiums. While not fair, this is the reality. Therefore it is important to know what your credit score range is and to take all measures to improve it.

So let's start by taking a look at what your score actually is. Your range is determined by applying a complex mathematical equation to the data in your credit report to determine how likely you are to pay back that loan, or in some instances how "good" of a person you are. Your credit report records almost all of your financial dealings for at least the last 7-10 years, every loan, every credit card, every financial transaction in which someone has extended you credit. It also attempts to record every time you paid on time, every time you made a late payment or missed a payment, every account defaulted on, in addition to how much credit you currently have available and what is the balance you owe and how much your monthly payments are.

Based on this comprehensive amount of data the complex mathematical equation is applied to determine the score. In general 35% of your credit score is comprised of your payment history (were you late on a payment, or have paid everything on time every time). The amount you currently owe, and how much available credit you have outstanding accounts for an additional 30% of your score. The length of time that you have had credit accounts for approximately 15% of your score, while new attempts to obtain credit (inquiries) makes up 10%. The final 10% of your score is made up of what type of credit you currently have (i.e. do you have a mortgage, do you have major credit card, do you have an auto loan, etc.).

Contrary to popular misconception however, there is no single score. Instead the mathematical formula used is different depending on what the results are being used for. For this reason credit score range is a more appropriate term than credit score. For example if you are looking to open a Target credit card the credit score displayed to Target will be different than if you were applying for a home mortgage or auto loan.

So what is the total score range and what does it mean? The range is from 300 to 850 with 850 being the best credit score you can have. The chart below shows the approximate amount of interest you would pay depending on your credit score range for a 30 year $250,000 home loan, and for a 5 year $25,000 auto loan. As you can see, the higher you fall within the credit score range the less you will pay in interest and the more money will be left for you to spend as you wish.

Score | Home Loan Interest Rate | Home Loan Interest Paid | Auto Loan Interest Rate | Auto Loan Interest Paid

800-850 (Outstanding) - 5.766% - $276,133 - 6.235% - $4,163 720-799 (Great) - 5.988% - $288,900 - 6.235% - $4,163 680-719 (Good) - 6.165% - $299,179 - 12.255% - $8,560 580-619 (OK) - 9.555% - $510,391 - 14.703% - $10,451 500-579 (Bad) - 10.355% - $563,526 - 15.582% - $11,145 Below 500 (Very Bad) - N/A - $N/A -

Just to reiterate by moving to the highest credit score range from the lowest you would save a whopping $287,393 (MORE THAN THE PRICE OF THE HOUSE IN SAVINGS ALONE), and when buying a car you could save almost $7,000 by moving into a higher credit score range.

Anthony is the President and Directing Attorney of the leading credit repair law firm YourCreditAttorney.com. The firm has assisted more than 25,000 consumers increase their credit score range and improve their credit.

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