Whenever you ask a bank for a car loan, mortgage or any other type of credit, the bank will want to know if you're reliable enough to pay the loan back on time. To do this, the bank will look at your credit score. Depending on what your score is and what bracket it falls into, the bank won't only determine whether to approve you for the loan, but will also determine what rates it should offer you.
Credit scores are numbers that represent your credit worthiness. A high score means you've proven yourself to have used credit responsibly in the past, while lower scores mean you're not as reliable. One widely used score, the FICO score, ranges from 300 to 850. Banks and other lenders give the most credit-worthy borrowers the best terms on loans. However, banks can determine their own borrower criteria and loan terms. Further, your score can change over time, and banks can change their loan criteria whenever they like.
High Credit Brackets
Each bank can determine for itself what credit brackets it wants to use, so while your score may qualify you as a top bracket borrower for one bank, the same may not be true at another. Further, credit scoring varies, and not all banks look at the same report. However, many lenders will look at your FICO score, and will often use similar brackets. According to MSN Money, people with FICO scores of 760 or higher fall into the top bracket, while those with 700 to 759 fall in the second-highest category.
Once you get below a FICO score of 700, you fall into average or below average credit score territory. Banks might differentiate average credit borrowers into brackets of 680 to 699, 660 to 679, and 640 to 659. The lower you go, of course, the tougher it is to get a loan and the higher your interest rates. If you have a score of about 620 to 639, you're in the lowest possible bracket that a bank will still accept you for a loan. Unfortunately, you'll also get the highest interest rates as well.
Bank Term Differences
Even if you fall into the highest possible credit score bracket, you won't be offered the same deal at every bank. While banks typically offer customers with solid credit the best deals, each bank sets its own loan terms. Shopping around, asking different banks about the loans and terms they offer, can net you the best deal.
Roger Thorne is an attorney who began freelance writing in 2003. He has written for publications ranging from "MotorHome" magazine to "Cruising World." Thorne specializes in writing for law firms, Web sites, and professionals. He has a Juris Doctor from the University of Kansas.