Benchmarking credit scores involves comparing and assessing an individual’s creditworthiness against established standards or benchmarks. A credit score represents a numerical indication of how likely someone is to repay borrowed money, helping lenders like banks and credit card companies evaluate the risk associated with lending to them.
Credit scores typically range from 300 to 850 and are divided into different categories, aiding lenders in evaluating an individual’s creditworthiness. While the classification of a “bad” or “good” credit score may vary slightly depending on the specific scoring model and lender’s criteria, here’s a general breakdown:
1. Bad Credit Score:
Generally, a credit score below 580 or 600 is considered bad or poor. Individuals with bad credit might face challenges when attempting to qualify for loans or credit cards. If approved, they may encounter less favorable terms and higher interest rates.
2. Fair or Average Credit Score:
A fair or average credit score typically falls within the range of 580 to 669. Individuals who possess fair credit may be eligible for loans and credit cards, but they could potentially encounter higher interest rates in comparison to those individuals with good or excellent credit.
3. Credit Score in the Good Range:
Generally, a credit score ranging from 670 to 739 is considered good. People with good credit scores are more likely to meet the qualifications for loans and credit cards that offer better terms, including lower interest rates.
4. Credit Score in the Very Good Range:
A very good credit score falls within the range of 740 to 799. Individuals with very good credit scores typically receive competitive interest rates and have a high probability of obtaining credit approval.
5. Excellent Credit Score:
An excellent credit score is defined as 800 or above. Those individuals with an excellent credit score usually enjoy the most favorable terms and have a greater likelihood of qualifying for top-notch loan and credit card offers.
It’s important to keep in mind that these ranges serve as general guidelines and different lenders may have varying criteria. Additionally, there can be variations among different credit scoring models employed by lenders. Regularly monitoring your credit score and understanding the factors that influence it can assist you in maintaining or improving your overall creditworthiness over time.