Learn more about how credit scores are being calculated and if 602 is a desirable credit score to apply for a loan.
“Is 602 a good credit score?”, that's what most borrowers are curious about. First of all, the credit score, also known as credit health or credit rating is a number between 350 and 850 that represents the credit risk of a person. A credit score is usually generated based on an analysis of information in credit files at specific credit agencies, including Experian, TransUnion (US), Equifax, and/or CentralCreditIndex(UK). Your credit worthiness, can range from “poor” to “excellent”.
A credit score is typically used by lenders to determine your credit worthiness when applying for loans such as mortgage loans so that they may assess if you are likely to pay back any future loan installments on time. Credit scores affect the interest rates applied to various types of loans even for those who do not have existing credit accounts. Thus credit scores are used to represent the creditworthiness of an individual as well as predict their future credit worthiness.
How Credit Scores are Calculated
Many credit score calculation models use credit files on individuals that contain items such as late payments, judgments, bankruptcies, liens and other negative information in order to calculate a credit score. For example, anyone with at least one late payment by the due date on any loan typically would have a low credit score.
A person's credit history is often considered when applying for loans or credit cards. The older the history (how long you’ve had credit cards, loans etc.) and how “clean” it is determines your credit score. That means paying all your bills on time will help maintain a good credit score.
All credit scores are used to represent creditworthiness, but some credit score calculation models take into account more factors than others. For example, the VantageScore credit score model looks at credit history for instance delinquency (any activity that is 30 days late), and any accounts that have been closed in collection. The FICO score on the other hand does not take into account any items that are 30 days late in making its credit calculations. So a person with very little credit standing but all their payment records showing as paid on time would have a better FICO score than a person with an excellent credit history who has one bill that was paid just a few days late.
The credit bureaus may use your credit data differently depending on what company they are collecting credit for. For example, credit cards such as Macy's credit card or Citibank credit card may use one credit score model to decide how creditworthy a person is while other credit bureau companies might use different models. Thus, the same credit history can be interpreted differently by each credit company which means that your credit score value will vary from credit card company to another.
What Makes Up a Good or Bad Credit Score
Credit scores used in insurance underwriting or loan approval decisions may also have more weight attached to some factors than others and thus there is no industry-wide standard on what makes up a good or bad credit score. Automobile Insurance companies may even prefer to get 3 years of your driving history along with your car insurance premiums instead of looking at just a simple credit score in order to base their creditworthiness decision.
In fact, there have been cases where people with excellent credit histories applied for loans only to be rejected because the company was using a credit model that looked at more factors than just their past history with respect to getting new loans/credit cards etc. The best way to check if you have a credit score is to get your credit report statement from one of the credit bureaus and look for the credit score listed in the statements.
Most credit bureaus will give you at least three credit scores based on different credit scoring models. This may be very confusing for people who are not familiar with how credit scores work but if you are looking to improve your credit history then this is something that you should definitely do just to make sure that all your information has been posted properly by each credit bureau since negative information could lower your credit score value.
The minimum acceptable credit score varies depending on whom you talk to, how they determine their data and what company they are collecting it for. For example, most mortgage companies will require a person's credit score to be above a certain credit score value (generally 640) in order for people with no credit history or poor credit histories to qualify for their home loans. In addition, car dealerships may have lower credit-qualifying scores, particularly if there is no collateral involved. Thus the minimum credit score values are not equal based on the company you are dealing with and it's always best to check with them first before trying to project your credit score just from the data you might find online elsewhere.
Creditors will look at several factors while giving any form of credit but this does not mean that they will give a person who has a low credit score and zero credit history an easy time qualifying for new credit cards or loans. example, if you have no credit history or credit score whatsoever, it will be a difficult task to get credit card companies to approve your credit cards application and since most people need credit cards in order to boost their credit history then this is something that you should definitely do first before trying to apply for credit cards.
Is 602 a Good Credit Score?
For many credit score enthusiasts, the credit rating of 602 is fascinating due to this credit rating being in a gray area where creditworthiness is neither good or bad. In random credit inquiries that credit scoring algorithms do not recognize as authorized by borrower, experts claimed that credit scores tend to drop quickly once it hits 600 points and finally hits bottom at 602 credit score.
While there are those who have achieved such a credit score with success, there are also positive indicators of 602 credit score which makes going below 600 look like a better option for some people. For one thing, credit history tends to stay intact when you have 560+ FICO score; therefore maintaining an acceptable average rate on your mortgage and other loans becomes way easier even when credit score is at 602 credit score level.
Another good thing about credit score of 602 credit score is its ability to keep the impact that life events will have on your credit rating in check. The case scenario should be similar to the previous one with credit history intact and mortgage rates still reasonable even if credit scores drop to 600 points; however, there is a big difference when you compare it side by side with higher credit ratings – like 742 credit rating.
It would take years before a borrower who has such high credit rating will see any significant impact due to unavoidable daily financial issues like late payments; thus, the easiest way out for them would most likely be banking on their stability as borrowers which indirectly encourages banks and lenders to always extend credit lines to them.
Given that credit rating of 602 credit score is expected to perform better than credit scores below 600 points, the credit scoring algorithm has not yet been perfected with regards to how it calculates and comes up with credit ratings of such credit scores.
Given that, banks would still be looking at credit history when lending money and borrowers who have a good reputation are likely going to get favorable financial treatment – like being offered lower interest rates on loans despite credit score already hitting the bottom.
Read the Entire Credit Score Series
- Which Factors Most Influence Credit Score?
- What is a Good Credit Score to Buy a Car?
- The First Steps Everyone Should Take To Repair a Bad Credit Score
- Proof You Don’t Need the Highest Credit Score for Great Rates
- 11 FICO Credit Score Myths that Will Change Your Financial Life