About one-quarter credit reports contain errors, some serious enough to get you denied for a loan, according to CNN.com. In addition, if you've ever had trouble paying your creditors, your rating will include legitimate blemishes as well. FICO scores, the system used by lenders to calculate whether you are a good or poor credit risk, range from 300, which is very bad, to 850, which is exceptionally good. Anywhere in the 600s or 700s is average.
Prime Loans
Auto lenders look for a rating of at least 620 for a new car at a reasonable interest rate, 740 for a very good interest rate. Credit card companies are usually willing to advance up to $5,000 with a credit score of at least 670, and the best cards, with limits up to $10,000 or no limits at all, are usually only extended if your credit rating is 720 or higher. To achieve an interest rate on a mortgage in the area of 6 percent or less, you would need a credit score of 660 to 850, as of 2011.
Subprime Loans
You can qualify for a subprime loan if your credit isn't good, but isn't very bad, either. Unless you've filed for bankruptcy in the last year or two, or have several open accounts that are past due at the time you apply, credit card lenders will generally give you a card based on a score in the 500s. Auto lenders and mortgage companies usually place a score under 620 in the subprime category. With a 620 credit rating, a mortgage will cost you approximately 8.5 percent interest as of 2011. A subprime car loan will also require paying higher interest rates, and possibly more of a down payment. Auto lenders begin worrying about the resale value of your car if they should have to repossess it, so you're more limited as to what you can buy.
Poor Credit Loans
If your credit rating is in the 400s, you can expect to have a hard time getting a loan, though it's not entirely impossible. Your credit card options will be limited and companies may require you to secure them by depositing money equal to your line of credit. If you default, they reclaim what you owe them from the deposit. You won't be able to buy a new car, and you'll probably have to pay a high rate of interest on an older vehicle. You generally cannot get a mortgage with a credit rating lower than 500.
Tips
If you're concerned about your credit rating or have been turned down for a loan, get a copy of your credit report. Make sure yours isn't one of the 25 percent that contain errors. If there is a mistake, contact the agency immediately. If there are problems on your report that you can explain, you have the right to submit a written statement and the agency is obligated to include it with your credit file. If a lender asks for your credit report, they will receive a copy of your explanation as well.
Late payments and defaults usually matter less as time goes by. If you can make timely payments for a year or two, your score will begin rising. If necessary, take out a secured credit card and make the payments regularly to start establishing better credit.
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