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The Debt Adviser

Grading your FICO score

Dear Debt Adviser:
My credit score is 624. Is that good or bad?

Dear Jason:
Yours is an excellent question because knowing your credit score and what it means to lenders can be the difference in thousands of dollars in interest charges.

Your credit score is one of the factors that lenders use when determining your credit risk. Typically, the higher your score, the less risk you present to the lender. The interest you will be charged on a loan or other types of credit is based in part on your credit score. Therefore, it is important to know your score and to do what you can to improve it.

To get back to your question, your score of 624 falls into the average FICO score for most people (somewhere in the 600s). Scores can be as low as 300 or as high as 900. The Web site myFICO.com reports the breakdown of the general population's FICO scores as:

  • 20 percent below 620

  • 20 percent between 620 and 690

  • 20 percent between 690 and 745

  • 20 percent between 745 and 780

  • 20 percent above 780

What does this mean to you? You are in danger of falling into the below 620 score category, which may cost you more in interest rates with some lenders.

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As a general rule, those with a score above 650 will receive the lowest interest rate loans. Those who score in the 620 to 650 range may have to provide additional documentation and explanations to the lender to qualify for the same rates. Those with a score below 620 will likely pay a much higher interest rate for the same loan.

As an example, let's examine how your FICO score might translate into an interest rate for a mortgage loan. According to myFICO.com, your score of 624 would likely qualify for a 30-year fixed-rate mortgage of 7.774 percent. If you increased your score by 51 points to 675 your interest rate would drop to 6.624. Over the life of the loan those 51 points would save you $42,026 in interest charges on a $150,000 mortgage. That is a lot of money saved!

Conversely, if your score were to drop below 620, your interest would increase to 8.420 and you would pay an additional $24,397 in interest charges. That is money you do not want to have to pay!

Now you may be wondering, "How do I increase my score?" Some general guidelines include:

  • Pay your creditors on time every month.

  • Do not use more than 40 percent of your credit limit on credit cards.

  • Keep your oldest accounts open if possible.

  • Resolve disputed credit issues as soon as possible, and follow up to be certain they get resolved.

You can also learn more by reading my column "What goes into my credit score?"

The Debt Adviser, Steve Bucci, is the president of Consumer Credit Counseling Service of Southern New England. Visit CCCS for additional debt advice or click here to ask a debt question.

-- Posted: Dec. 6, 2002

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See Also
Credit Scoring 101
FAQ about credit cards
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