Understanding the credit needed to get a particular credit card is essential, but what goes into a credit score and how are they determined?
Credit scores an essential feature of the world of credit cards. A credit score is a number that summarizes represents the potential risk to lenders should they provide an applicant with a line of credit. Credit scores are issued by credit bureaus, such as TransUnion, Equifax, and Experian.
A credit score ranges between 300 and 850 and is based upon a variety of factors that consider your past payment history, your overall debt burden, and other relevant factors. Here is a brief rundown of the factors that affect your credit score:
- Payment history – Your payment history details how long an individual has been making payments on both their past and current debt. The more on-time payments made, the better the person looks to lenders.
- Current debt amount– Current debt amount refers to, you guessed it, the amount of debt for which a person is currently responsible. Having substantial existing debt will negatively reflect when calculating a person’s credit score.
- Credit history length– Having several years’ worth of borrowing and repaying money shows that an applicant is financially responsible and is a trustworthy borrower.
- New credit– It is generally good practice not to open several credit accounts within a short period, as doing so will make a person appear to be a riskier borrower.
- Credit mix– It’s not just credit card accounts that are taken into consideration when determining a credit score. Mortgage loans, auto loans, retail accounts, and other instances of money lent are all looked at to form a transparent profile of a consumer.
For a more detailed look into what goes into a credit score, please visit the Credit Card Basics section in our blog.
Credit Needed and the Credit Score Range
If you are wondering the credit needed to get a credit card, it helps to understand what the score ranges are, and what they mean for your credit future. As previously mentioned, credit scores vary between 300 and 850, with lower scores being worse, and higher scores being better.
- Excellent Credit – Excellent credit scores typically are 740 and higher. Consumers with excellent scores are viewed as the least risky by lenders and are therefore reasonably likely to be approved for any credit card. They also often secure the lowest interest rates.
- Good Credit – A good credit score typically falls between scores of 670 and 739. If someone has “good” credit, they may be approved for a range of credit cards but might not get the best rates.
- Fair Credit – Fair credit scores typically range between 580 and 669. Fair credit suggests that a person may pose a moderate risk to lenders of defaulting on a loan. With a fair credit score, approval chances are lower, and the selection of products is smaller. Consumers with fair credit are considered “subprime.”
- Poor Credit – Poor credit scores fall between 300 and 579. Someone with poor credit will likely not get approval for new credit, and if they are, it will come with very high-interest rates. There are still options available for individuals with bad credit, however, including some that are specifically designed to improve their standing, such as secured credit cards.
- No Credit Score – If a person has less than six months’ worth of credit history, they are said to have no credit score. Those with no credit score have the least chance of getting approved for a credit card, but still have options available, such as secured cards.