Everyone has heard that their FICO credit score has an effect on their eligibility for loans and other financial products, but very people really understand the process and reasoning behind how a credit score affects their ability to qualify for a loan. The truth is that there are no fixed rules that determine who gets a loan and who doesn't, but there are several general trends that economists, bankers, and other industry leaders have noticed.
Credit score can greatly affect the amount of money that a bank will loan and the interest rate that the money is loaned at. Different types of loans will be more affected than others, however. For example, many people have noticed that credit score is just about the only criteria that are considered when a person tries to apply for a credit card. People with low scores are automatically rejected while those with high scores tend to be approved quickly. The companies rarely look at the reasons for a low or high credit score.
On the other hand, auto loans and mortgages are usually granted after reviewing a credit score and many other factors. While people with high FICO credit scores tend to be approved more often than those who have low scores, lenders of these types of loans will also look at credit history, income, and assets. For example, someone with a high credit score who has a history of skipping car payments might discover that he or she is not eligible for an auto loan. Generally speaking, however, anyone with a credit score higher than 720 will most likely be able to get just about any loan they want and qualify for some of the best interest rates. This is because most banks consider people with FICO credit scores in this range to have a good history of paying their bills on time.
Anyone with a credit score between 719 and 600 is considered to have an above average credit score. While it is generally easy for this group to be approved for most loans and credit cards, they tend to have to pay more in interest than those with better scores. For this reason, it is generally recommended that people in this category do whatever they can to improve their score.
People with average credit scores, start to have difficulty finding loans in some cases. Most recently, for example, banks were not offering mortgages to people in this group after the housing crisis caused a general tightening in the credit market. When this group can find a loan, they tend to pay high interest rates.
Finally, people with below average FICO credit scores tend to have a lot of problems getting a loan. Many banks and credit card companies will not consider applications for credit from this group of people.
