A credit score can be defined as the accepted way of determining a person’s credit worthiness. Credit scores are achieved via numerical analysis and expression of an individual’s credit files. Credit scores are mostly used by banks and other money lenders as a way of estimating risks that may arise from lending money to a certain individual to mitigate any losses that may occur. Banks make use of credit scores to determine which individuals will bring more returns. The use of credit score ratings is not limited to banks and money lenders. Other institutions that make use of credit scores are insurance, government agencies, and landlords. The use of this technique is widely accepted in several countries. Different countries have the different interpretation of credit scores. In the United States, it signifies the ability of a person to pay their bills. The Credit reports are kept by bureaus such as Equifax, Experian, and the TransUnion. During the numerical calculation and expression of credit scores, income is not taken into consideration. A person may order a copy of their credit scores from the credit bureaus to assess and make plans on how to improve the score.
What the average credit score?
Most people often wonder what their credit score is and how good enough the score is. The average credit score is a little more complicated to achieve than it sounds. To determine if your score has attained the mean value, it’s important to find out what your score is first. By visiting www.credit.com, one can quickly know their score and how it compares to the national or state averages.
The average credit score differs for different countries. There are several models and score ranges used in calculating the score which is important to take into consideration. The VantageScore is the type mostly used to derive the average credits scores. The average credit score is considered a standard score since what a certain lender terms as fair may be regarded as poor or bad by another. Average credit scores differ for different individual depending on the presence of mortgages, loans, leases and owning a bank card.
Projected Interest Costs on 625 Credit Score
Banks and other money lenders use credit scores to determine the interest rates. A poor rating attracts high-interest rates on loans and mortgages. Although most lenders check the score during application of a credit or mortgage, the rate of risk pricing policies is also applied regularly continually to evaluate the scores of individuals and group. If the credit scores go down, the lender raises the interest cost immediately. It is advisable to maintain a good credit score to avoid facing any sudden hikes in interest expense.
What does it mean for house loans, car loans?
Credit scores have a direct impact on a house and car loans. Credit score systems allow one to enjoy the best rates on car and home loans. These systems count all applications for car loans as a single inquiry within a period of 14 days. That allows a lot of time for shotgunning. Shotgunning is whereby a person can seek for pre-approval by their lender. A car dealership seeking car loans can shotgun the applications to several lenders and wait for approval. Creditworthiness, as calculated by credit scores, can determine which car a person qualifies. The same applies for house loans and car loans.
- Trulia: I have a 625 Credit Score, can I get a mortgage?
- Homes: Can you get a decent home loan with a credit score of 625
How much of loans can one afford
The number of loans one can afford are mostly determined by their credit score as this shows their credit worthiness. A low credit score may not allow one access loans from several lenders. This does not necessarily mean that loans are not awarded to persons with this score. The FHA accepts loan requests of below 625. Several factors are considered to determine if one can afford a loan or not. They include debt to income ratio, enough assets, and a stable income.
How does a credit score get calculated?
Credit scores are calculated from different pieces of data in the credit reports. The FICO 625 score is calculated based on five factors. The factors are based their importance on the credit score calculation. These factors are:
- Total amounts owed (30 percent)
- New credit accounts for 10 percent
- The length of credit history (15 percent)
- Payment history. This account for 35 percent
- Credit mix accounts for 10 percent and is considered the least important
These categories are based on the general population and although the fico credit scores are calculated based on the categories above, the importance of each varies for different individuals. The calculation of the credit score is mostly based on the information in a person credit report.
Ranking of the 625 score across different credit scoring companies
According to Fico, a credit score of 625 ranks as the average rating. Fico ranks this score as standard while according to Vantage score, 625 is ranked a D.
Examples of credit score models
Before the creation of standardized credit score models, different lenders used their models to assess a person’s creditworthiness. These models varied from one lender to another, and this led to the creation of standardized credit score models to do away with the disparities. Below are examples of the models used judge the ability of persons to pay loans and judge risks
FICO Score: 300-850
The fico model was developed by the fair Isaac cooperation. This model is termed as a person’s past ability to repay loans while most lenders are more interested in an individual’s future ability. Over the years the use of Fico has been integrated with other models to increase the accuracy of the score Fico is the most popular model used in determining people’s credit scores. There are several questions often asked:
1. What does a 625 FICO score mean
This score means that a personal has reasonable credit. Not too good yet not bad credit
2. Is 625 a good credit score
This is most common question ringing in people’s minds. 625 fico score cannot be termed as a good credit score as a person will no be able to enjoy the best of interest rates on loans and mortgages
3. Is 625 a bad credit score
This score is not a bad score because several money lenders do not refuse one loan
VantageScore 3.0: 300-850
This is a credit rating model that was created by Equifax, Experian, and the TransUnion. These credit bureaus developed VantageScore to compete with FICO. It a much-improved version of the VantageScore version 2.0.
VantageScore ( version 1.0 and 2.0): 501-990
These old versions of Vantage score ranged from 501-990. There are several categories which determine a person credit score. These calculation types are payment history, depth of credit, utilization, balances, available credits and recent credits.
The different classification levels were A-F as shown below
PLUS Score: 330-830
This model was developed by Experian has credit scores ranging from 330 to 830. Sold by Experian, this score was created to help consumers understand their creditworthiness.
This is a model that has scores ranging from 100 to 900. Was set up by TransUnion purposely to predict the risks involving new bank accounts.
Equifax Credit Score:280-850
This is a proprietary score that ranges from 280-850. Information. This score can be easily calculated with information obtained from Equifax, TransRisk, and Experian.
How can I increase my 625 credit score
Increasing a credit score can be challenging hence the need to maintain a good score is highly advised. Below are a few ways to increase your credit score
1. Maintaining open accounts
This helps in building one’s credit history. According to FICO credit history accounts for 15 percent of the total score. The longer the credit, the better the score
2. Making early debt payments.
It’s a no brainier to pay debts on time or before they are due. This is because early payments significantly improve one’s credit score
3. Carrying small balances on credit cards
Maintaining a balance of below 30 percent of you limit raises the credit scores
4. Avoid opening new account unless when necessary
Opening new accounts and application of new credit cards reduces someone’s credit history and subsequently the score.
5. Make regular checks on your credit reports
There are several instances where errors are present on the credit report. The presence of these errors lowers your score. Spotting and rectification of the errors help increase your score
Error on credit reports
The most important reason for monitoring your credit report is to detect errors and ensure that the mistakes are rectified as soon as possible. The credit bureaus are responsible for the correction of mistakes in your report. Once you notice any error or incorrect info in your report you should write to the Bureau citing all the information you believe to be inaccurate. The bureau then investigates the matter within 30 days and replies via the address you provided. A 625 score on credit reports is substantially increased by the correction of errors.
How to get free credit scores
Although getting free credit has never been a right, the consumer financial protection bureau has encouraged lenders to provide free credits to their customers. Many banks and lenders have taken into the idea. By Joining one of this banks you can get free credits. Free credit scores can be obtained from credit.com.