How Does the Credit Score Scale Help Me Get a Loan?

How do they know if you qualify for a loan or not? Do they call up all the people I’ve borrowed from and ask them? Do they just go in a backroom somewhere and flip a coin? And how do all the companies come up with the same answer? Is my name posted on some bulletin board somewhere with the words “Don’t give a loan for more than the price of a postage stamp” under my picture? Sometimes the world of credit and loans can appear to be a real mystery.

In reality, there is no coin flipping involved. Your credit worthiness is measured on a credit score scale, you could have a score anywhere from 300 to 850. While companies consider several factors when giving a loan or other credit, a reading on the credit score scale above 725 is generally considered good. It is not uncommon for an individual to have several credit scores, depending on the reporting agency which calculates it.

Credit card providers and loan institutions use a credit score scale which produces what is called a FICO score to determine credit limits, interest rates, and even the payback period. While not perfect, the credit score scale provides a good starting point for determining credit worthiness, based on your history of making payments on loans. The higher you score on the scale, the better; if your score is below 600 you will generally be considered a poor credit risk.

Aside from your credit score, finance firms and banks generally take into account as many as five credit accounts. These must be accounts with a history however, usually they should have been in use for at least one year to be considered in your credit evaluation.

In the United States, the national average on the credit score scale is a score of 676. Some regions of the country are known for generally high credit scores, while others are known for low scores. Nevertheless, a mediocre FICO score paired with a stong recent history can often be enough to get you the loan you seek.

So don’t worry about any coin flipping in the back room. You can also rest assurred your Aunt Agatha isn’t likely to get a phone call next time you want to buy a car on credit. There is very little hocus pocus involved, but with a strong credit score you will have a better chance of making that loan appear when you want it.