There’s something potential lenders use to make lightning-fast judgments about what kind of consumer you are: the credit score. That’s according to John Ulzheimer, president of consumer education at SmartCredit.com.
“The credit score was designed to predict the likelihood of somebody going delinquent on a loan 24 months after they have actually applied for the loan,” says Ulzheimer. “It’s an assessment of the risk for a lender to do business with you. So, they use these scores to determine whether or not A) they really want to business with you and b) under what sort of terms they want to do business with you.”
“You actually have hundreds of scores and the reason you have hundreds of scores is, think of scoring models like software and every couple of years, software is redesigned, redeveloped, there are competitors in the market that have their suite of products and credit scoring models are really not that different from that,” Ulzheimer says. “So, you have 50-plus versions of a FICO score, which is really the industry standard.”
Some of our listeners have written in to say they’ve seen huge variations in their credit scores — from a 10-point to even a 60-point difference. Ulzheimer says those differences don’t matter much in most cases.
“In my 21 years in this business, I’ve never actually seen a consumer have three identical credit reports across the three credit reporting agencies,” he says. “The difference in score is important only if it transcends what I would call ‘good and bad’, meaning that if you have really good credit, you’re going to have a really good credit score pretty much anywhere you apply. The difference is minor — if you’re an 800 at one credit bureau and 810 at another credit bureau — that’s not a big deal. Where it does become a big deal is if you have something negative on a credit report at one credit reporting agency that’s not on another credit reporting agency. Then, you can have huge disparities in scores which can be problematic.”
Here’s a guide to how creditors read your score in today’s consumer market:
750-higher: This is considered a good score. “Any credit score that is high enough that the lender is going to approve you at their best terms. There is no credit crunch for you. You’re really in the sweet spot,” says Ulzheimer.
680-750: Ulzheimer says a score that falls in this range means, “you may not get the best deal that the lender’s offering, but you’re likely going to get approved.”
680-under: This is considered a low credit score. “Anything below 680, you’re really rolling the dice,” says Ulzheimer. “Anything below 600, it’s highly unlikely you’re going to get approved and if you do get approved, you’re going to be paying some pretty punishing interest rates.”
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