A baseline acceptable credit score isn't set in stone. It varies according to economic conditions. However, in the aftermath of the Great Recession, "baseline acceptable" is higher than it once was. No less than authority than the Federal Deposit Insurance Corp. reports that "an 'acceptable' score varies with the lender's appetite for risk," noting that the minimal acceptable score is about 600.
Credit Score Ranges
Credit scores range from a low of 300 to a high of 850. With a score of 750 or more, you shouldn't have an issue obtaining credit. You probably receive lots of "pre-approved" credit card offers in the mail. The median credit score is about 725 -- still considered good -- according to the Federal Home Loan Mortgage Corp., commonly known as Freddie Mac. Once your score dips into the 600s, you'll have a more difficult time receiving loans. That doesn't mean it's impossible, but you'll probably have to make a larger down payment and pay higher interest rates.
Credit Score Factors
Your payment history is a major factor determining your credit score. If you always pay your bills on time, it should be reflected in your score. However, even one or two late payments can negatively affect you. When younger, you're at somewhat of a disadvantage because your payment history isn't as long as when you're older. Your collective debt -- whether for schools, motor vehicles or credit cards -- also weighs heavily. Every time you apply for a credit card, it affects your credit score -- and not for the better. Even if you have no intention of ever "maxing out" your cards, your credit score reflects the fact that you have that potential.
For lenders, a higher score equals a lower risk and vice versa. Historically, a score below 650 was considered "subprime" for mortgage loans. Although subprime mortgages were common before the Great Recession -- and a cause of it -- they aren't common any more. If your score is low, you might be able to raise it by checking your credit report for any errors that are unjustly lowering your score and requesting the errors be fixed. You're entitled to a free annual credit report, so contact the three major agencies -- TransUnion, Experian and Equifax -- for a copy.
While extremely important, your credit score isn't the only factor lenders take into consideration. Your employment history and relative job security is one factor, while your debt-to-income ratio merits careful scrutiny. Debt-to-income considers your total monthly debt -- auto loans, credit cards and education loans -- compared with your monthly income. Your debt-to-income ratio shouldn't exceed 43 percent if you're looking for a mortgage. If your debt-to-income ratio is low, that means you have more room in your budget for borrowing. A higher down payment on the property or automobile might seal the deal for a lender.
- Freddie Mac: The Importance of Good Credit
- Time: Need a Mortgage? Better Hope Your Credit Record Is Almost Perfect
- Wells Fargo: How Lenders Evaluate Your Credit
- MSN: 7 Ways to Rent with Crummy Credit
- Federal Deposit Insurance Corporation: Fair Lending Implications of Credit Scoring Systems
- CBS News: Will New Rules Make It Harder to Get a Mortgage?
- Fair Isaac Corporation. "What is a Credit Score?" Accessed Oct. 11, 2020.
- VantageScore Solutions, LLC. "Who Uses Credit Scores?" Accessed Oct. 11, 2020.
- VantageScore Solutions, LLC. "Free Score Providers." Accessed Oct. 11, 2020.
- Fair Isaac Corporation. "What's In My FICO Scores?" Accessed Oct. 11, 2020.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including Sapling, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.