Credit Card Guide
 
Follow Us  twitter facebook You Tube Google+
 
Credit Cards > Credit Card News > Credit Score > Does Your Credit Score Still Measure Up?



 
 

Does Your Credit Score Still Measure Up?

 
By Eva Norlyk Smith, Ph.D.
June 23, 2009
tools
tools
email print comment
tools
SHARE

The world of credit is changing fast, and so are the benchmarks for what is considered good credit. In today’s tightening credit environment, people who once had good credit may find that their score no longer measures up, and that applying for a new credit card or loan suddenly is not as easy as it used to be.

Credit scores give credit card companies and prospective lenders a quick snapshot of a person’s financial situation and his or her ability to manage credit responsibly. Credit scores are just little three-digit numbers, but they pack a surprising punch. Your credit score not only affects whether you’ll get approved for a new credit card or mortgage loan, it may also affect your ability to land a new job or rent a place to live.

In today’s tightening credit environment, credit scores have become more important than ever before. At the same time, unfortunately, the benchmarks for what is considered excellent and good credit are changing, and people with a score that used to be considered good may discover that lenders now turn their nose up at their score.

According to mortgage brokers and industry professionals, while people with a FICO score of 700 to 720 in the past qualified for the best mortgage rates, today a FICO score of 740 is considered minimum to get the best terms. For the best deals on rewards credit cards, auto loans and home equity lines of credit, lenders nowadays want to see a FICO score of 750-760. On the lower end, a credit score of around 620 used to be considered subprime, today even a score below 660-680 is considered below average.

The tightening credit standards affect people with a high FICO score of about 750 or greater very little. If anything, people with excellent credit might find that they’re more popular with lenders than ever. People with lower credit scores, in contrast, are likely to really feel the bite of the tightening credit environment. They will find it harder to get approved for credit cards or loans, and when they do get approved, they will be charged higher interest rates and be given far less favorable terms.

A low credit score can cost you dearly in the long run. While a 1-2% uptick in interest rate may not seem like much on paper, it translates into both higher monthly payments and far higher interest charges over the life of the loan. For a 30-year mortgage, for example, for each $100,000 borrowed, those with stellar credit will pay $90,253 in interest over the life of the loan, while someone in the subprime credit category will pay $131,727, according to myFico.com (based on interest rates of 4.86% versus 6.67%). The monthly payments would be $528 versus $644, a $116 difference that in turn affects how much house you can afford.

In this environment, it’s important to be more cautious about maintaining a good credit score than ever. Aim to have a credit score of 750 or more. Follow the usual guidelines for keeping your credit score high:

  • Pay all bills on time.
  • Keep balances on credit cards and other lines of credit at 30 percent of available limits (preferably at 10%)
  • Keep applications for credit, including credit cards, to a minimum, except when you’re shopping around for the best terms for a mortgage.
  • Have a mixture of different loans and credit cards to demonstrate that you can manage debt effectively.

Share 
 
     

 
 

VIEW RELATED STORIES

4 things that are sure to drop that great credit score - A few serious mistakes could drop that great credit score fast, potentially costing you money and headaches down the road. Here's what to avoid...

Now that you have your credit report, what do you do? - Obtaining your free credit report does you no good if you don't know where to look for errors or how to read it. Here are tips to get you started ...

Unraveling the mystery of credit bureaus - Credit bureaus don't decide if you will get that swanky apartment you crave, but the information they gather influences the people who do decide ...

ALL CREDIT CARD NEWS & ADVICE ARCHIVES >>

 
     

 
  If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the ‘Post to Facebook’ box selected, your comment will be published to your Facebook profile in addition to the space below.

Our editorial content is not sponsored by any bank or credit card issuer. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Comments Closed

 
     


 
Secure SSL Technology
Secure SSL
Technology
 
Twitter Facebook You Tube Google+
About Us Privacy Policy Editorial Team Terms of Use
Contact Us California Privacy Rights Media Relations Site Map

Close X