Grading your FICO score
Dear Debt Adviser:
My credit score is 624. Is that good or bad?
Yours is an excellent question because knowing
your credit score and what it means to lenders can be the difference
in thousands of dollars in interest charges.
Your credit score is one of the factors that lenders
use when determining your credit risk. Typically, the higher your
score, the less risk you present to the lender. The interest you
will be charged on a loan or other types of credit is based in part
on your credit score. Therefore, it is important to know your score
and to do what you can to improve it.
To get back to your question, your score of 624 falls
into the average FICO score for most people (somewhere in the 600s).
Scores can be as low as 300 or as high as 900. The Web site myFICO.com
reports the breakdown of the general population's FICO scores as:
- 20 percent below 620
- 20 percent between 620 and 690
- 20 percent between 690 and 745
- 20 percent between 745 and 780
- 20 percent above 780
What does this mean to you? You are in danger of falling
into the below 620 score category, which may cost you more in interest
rates with some lenders.
As a general rule, those with a score above 650 will
receive the lowest interest rate loans. Those who score in the 620
to 650 range may have to provide additional documentation and explanations
to the lender to qualify for the same rates. Those with a score
below 620 will likely pay a much higher interest rate for the same
As an example, let's examine how your FICO score might
translate into an interest rate for a mortgage loan. According to
myFICO.com, your score of 624 would likely qualify for a 30-year
fixed-rate mortgage of 7.774 percent. If you increased your score
by 51 points to 675 your interest rate would drop to 6.624. Over
the life of the loan those 51 points would save you $42,026 in interest
charges on a $150,000 mortgage. That is a lot of money saved!
Conversely, if your score were to drop below 620,
your interest would increase to 8.420 and you would pay an additional
$24,397 in interest charges. That is money you do not want to have
Now you may be wondering, "How do I increase
my score?" Some general guidelines include:
- Pay your creditors on time every month.
- Do not use more than 40 percent of your credit
limit on credit cards.
- Keep your oldest accounts open if possible.
- Resolve disputed credit issues as soon as possible,
and follow up to be certain they get resolved.
You can also learn more by reading my column "What
goes into my credit score?"
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.
-- Posted: Dec. 6, 2002