What Is a Cut-Off Score?

A cut-off score is the lowest possible credit score one can have and still qualify for a loan or other form of credit from a particular lender. Cut-off scores may vary widely from one lender to another and depending on the type of credit🍎.

How Cut-Off Scores Work

When a bank or other lending institution is evaluating whether to extend credit to an individual or a business, they aim to do so with as little risk as possible. One way to assess the 澳洲幸运5官方开奖结果体彩网:creditworthiness of an individual is through that person's credit score, a number typically between 300 and 850 that reflects how well they have handled credit in the past. Businesses can also have 澳洲幸运5官方开奖结果体彩网:business credit scores, as well as 澳洲幸运5官方开奖结果体彩网:credit ratings determined by independent agencies.

Different lending institutions will have different cut-off scores, reflecting their 澳洲幸运5官方开奖结果体彩网:risk tolerance. Cut-off scores can also vary among different credit🌳 products at the same financial institution. The cut-off score for credit cards will tend to be lower than that for large lo𒈔ans like home mortgages, where more money is at stake.

Lenders determine their acceptable cut-off scores, and anyone applying for credit whose score falls below the cut-off is usually rejected. While lenders may override the cut-off score and approve a loan, that is relatively rare. If they do, the loan will most likely carry a higher interest rate or be for a more limited amount of money💯.

In addition, there is no guarantee that a person with a score above the cut-off will automatically get approval. A lender may consider other factors, as well. For example, credit scores do not take into account an individual's income, investments, or bank balances because that information is not part of their credit reports.

How Credit Scores Are Determined

Individuals' credit scores are based on the information in their 澳洲幸运5官方开奖结果体彩网:credit reports compiled by the three major credit bureaus, Equifax, Experian, TransUnion. There are various credit-scoring systems, but the 澳洲幸运5官方开奖结果体彩网:FICO score is the oldest and most commonly used one.

FICO scores assign different weights to the data in credit reports, reflecting its importance and how predictive it might be of a person's future credit-handling behavior. A typical FICO score breaks down like this:

Payment history: 35%. Does the person pay their credit bills on time?

Amounts owed: 30%. Do they have a lot of debt, particularly as a percentage of their available credit? This is often referred to as a 澳洲幸运5官方开奖结果体彩网:credit utilization ratio.

Length of credit history: 15%. Have they maintained credit accounts and kept them in good standing for a per💧iod of time?

New credit: 10%. Have they taken out a lot of credit recently? If 🌠so, th🐓at can be a red flag to prospective lenders, who may wonder if the person is in some sort of financial difficulty.

Credit mix: 10%. Have they used more than one type꧒ of credit (such as a credit card and an auto loan) rꦍesponsibly?

The three major credit bureaus all produce multiple FICO scores, some tailored to specific types of lenders, such as credit card issuers or mortgage companies. They also produce scores based on the 澳洲幸运5官方开奖结果体彩网:VantageScore scoring model, FICO's principal competitor. For those reasons, any given individual is likely to ♉have multiple credit scores.

Cut-Off Scores vs. Credit Score Ranges

Credit scores are commonly grouped into categories based on quality. According to the credit bureau Experian, for example, a score between 300 to 579 is considered poor, while one between 580 and 669 is fair. Scores between 670 and 739 are good, those between 740 and 799 are very good, and those between 800 and 850 are exceptional.

While those numbers can be useful in knowing where you stand as a potential borrower, they are not the same as cut-off scores, which, as mentioned, are set by each lender. Some lenders may prefer to deal only with people with good, very good, or even exceptional credit scores, while other lenders cater to customers with only fairꦇ or even poor credit. Some lenders, such as credit card issuers, may have a pꩵortfolio of products aimed at different types of borrowers.

However, the higher y🦹our credit rating, the more likely you are to be approved, the more choices of lend🐓ers you are likely to have, and the lower the interest rates you may be offered.

The Bottom Line

In deciding whether to extend a loan or other credit, lenders typically have a cut-off point for credit scores, and would-be borrowers whose scores fall below that point are likely to be turned down. Lenders set their own cut-off scores, so a borrower who is rꦺejected by one lender because of thei🃏r credit score may be welcomed and approved by another lender. However, consumers who build and maintain strong credit scores will have more and better options when they need to borrow.