What is Your Credit Rating? Grade Your Credit

Did you know that 75% of all mortgage lenders use a three-digit credit score to determine your loan eligibility?  This score is based on the information contained in your credit report. And the interest rate you will be charged is based on your credit score, so raising your credit score as little as 15 points could result in a lower interest rate and thousands in savings.  You can save anywhere from a few hundred dollars in credit card interest charges, thousands of dollars on your next car loan, and tens of thousands of dollars on a mortgage loan simply by improving your credit score as much as possible. 

The information below offers general guidelines as to what your credit score might be. Each lender sets its own guidelines for approving loans and issuing credit.  For this reason, the information below offers only general guidelines.  Your debt-to-income ratio also plays a role in determining whether or not you will be issued credit.  Some lenders require a debt-to-income ratio that may be higher or lower than those stated below.  

The information below is based on the FICO scoring model, which ranges from about 300 to 850.  Other lenders might use their own in-house scoring systems or another scoring model. General rules to determine your credit score and creditworthiness are as follows:  

A rating [Credit score 720 or higher] -- You can easily obtain financing at the best rate; you can get approved for a credit card online in a few seconds.  Note that a score above 750 means you have extremely good credit.

Typical debt- to- income ratio:  Below 35%
Mortgage:  You have not been late with a payment in the last 24 months
Installment loan:  You have been 30 days late making payments 0 or 1 time within the last 12 to 24 months
Revolving credit:  You have been 30 or 60 days late with a payment 0 or 1 time in the last 12 to 24 months
Additional requirements:  Good/excellent credit during the last 2 to 5 years; no bankruptcy within the last 2 to 10 years

B rating [Minimum credit score 620] You can get approved, but not at lowest rate.  You can get credit cards and such, but at a higher rate than someone with an A rating.

Typical debt-to-income ratio:  Around 50%
Mortgage:  You have been 30 days late with a payment 2 or 3 times in the last 12 months
Installment Loan:  You have been 30 days late with a payment 2 to 4 times during the last 12 months
Revolving credit:  You have been 30 days late with a payment 0 to 2 times in the last 12 months
Additional requirements:  You have no 60-day late mortgage payments; if filed bankruptcy, it must be discharged 2 to 4 years ago

C rating [Minimum credit score 580]  Have trouble getting approved.  Very high rates. The lender might ask you to get someone to co-sign for you.

Typical debt-to-income ratio:  55% or higher
Mortgage:  You have been 30 days late with a payment 3 or 4 times in the last 12 months
Installment Loan:  You have been 30 days late with a payment 4 to 6 times during the last 12 months
Revolving credit:  You have been 60 days late with a payment 2 to 4 times in the last 12 months
Additional requirements:  If you filed bankruptcy, it was discharged 1 or 2 years ago

D rating [Minimum credit score 550]  Serious trouble getting approved.  Co-signor required.

Typical debt-to-income ratio:  Around 60%
Mortgage:  You have been 30 days late with a payment 2 to 6 times in the last 12 months; and 60 days late 1 to 2 times during the last 12 months
Installment Loan:  You have a few 90 and 120 day late payments during the last 12 months
Revolving credit:  You have a few 90 and 120 day late payments during the last 12 months
Additional requirements:  If you filed bankruptcy, was discharged within last 12 months

E rating [Credit score under 550]  Unlikely to be approved. 

Typical debt-to-income ratio:  Around 65%
Mortgage:  You have a pattern of 20, 60, 90 and/or 120 day late payments
Installment Loan:  You have a pattern of 20, 60, 90 and/or 120 day late payments
Revolving credit:  You have a pattern of 20, 60, 90 and/or 120 day late payments
Additional requirements:  You may have a current bankruptcy or foreclosure

Next topic:  What a Poor Credit Rating Costs You
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