Credit Score Scale

Credit scores can vary from a low of 300 to a high of 900. According to the latest figures, Americans are averaging about 720, so that means that 50% of people have credit scores below 720. And with the new tighter credit policies, that can be a problem. And the credit score scale has changed to reflect these new tougher requirements.

In fact they will often flat turn anyone down with a score below 600 unless you have a down payment of at least 25%. Too many people got financed with little regard to income and they could not keep up the payments.

Before the credit and finance meltdown last fall in 2008, most lenders and creditors used a scale similar to the these examples for mortgages. 

Roll forward 3 years to February 2011, and this is how the average looks now:

Keep in mind that this is just using your credit score and no other factors. If you put down 50% or more, you can jump up to prime rate and below even if you have a 640. The amount of equity that the borrower has can have a huge positive impact.

As you can plainly see, the credit score scale just raised the bar considerably. No more squeaking by in the 600's without paying much higher interest rates. Your credit score has always been important, but the cost of a low credit score is increasing with the tightening of credit.

And almost 95% of the mortgages financed today (2011) have at least a 20% down payment to even qualify. There are some builders and investors that might allow 10% if you can find them but the norm is 20% down or forget it.

If you find your credit score below the minimum for prime rate, it's time to take a look at your credit report. In order to improve your credit score, you need to get a copy of your credit report and review the information.

Also realize that employment records and income proof are now part of the requirements for any lending institution. That's where the credit system reporting really failed to show the ability to pay the amount financed. So even if you have a high 700 credit score, you will have to demonstrate the ability to pay the amount financed too.

You can read several articles here on our website to help you determine what you can do about incorrect or misleading information. You can also use our Improve Your Credit in 30 days Guide to help you get fast results.

In fact you should do that on an annual basis since new data can be added at any time from any of your creditors. Keeping an eye on your credit report will eliminate any surprises when you apply for credit.

And many companies use your credit report and credit score for other reasons. Prospective employers, insurance companies, and other organizations can use the information to determine rates and eligibility for jobs.

It's a good idea to keep any eye on the credit score scale too. That will tell you where you stand and what kind of interest rates you might pay on any future loans.