Q: I have seen a letter grade associated with my credit score. Is this an official grade or score? What do the letters mean?
If you tracked your GPA closely throughout your school years, it's easy to think that letter grades on your credit score carry some official weight. However, competition among credit bureaus and scoring companies has given modern scores lots more wiggle room than in the past.
You're probably accustomed to the numeric credit scores made popular by FICO. Back when that company was still called Fair Isaac, researchers there figured out a way to rate your credit on a scale from 350 to 850 points. Realistically, you're doing very well if you score above a 720, especially in today's economy.
Yet, over the past few years, other companies have gotten into the credit scoring business. Some financial pundits call their products "FAKO scores," since they resemble FICO's scoring system. Lately, we're seeing some credit reporting agencies summarize your credit score as a letter grade, making it easier for some of us to visualize where our scores fall on the scale:
- A+ or A: You're always on time with your monthly payments, you only utilize a small fraction of your available credit, and you're well on your way to paying off any mortgage or auto loans in your name. This score should qualify you for just about any credit card offer on the market.
- B+ or B: Most Americans fall into this category. Like many of us, you've got one or two dings on your credit history. Or, the value of your home or vehicle may have fallen below the amount you still owe. You'll still qualify for many rewards credit cards and some balance transfer offers.
- C+ or C: Something serious has happened. Maybe you lost your job, got sick, or simply spent more than you made. Multiple accounts have gone beyond 30 days late, more than once. You'll probably only get offers for credit cards for limited credit.
- D+: One or more of your accounts has fallen into collections. A secured credit card or another credit card for bad credit might help you improve your score.
- F: You've endured a bankruptcy, a repossession, a foreclosure, or another personal financial crisis. Right now, you'll have to rely on prepaid debit cards for online shopping and purchase protection.
Remember, no score is ever hard and fast. Lenders often tweak scoring algorithms to fit their business models. Some specialty lenders will ignore a low credit score if you can offer proof of income, verified employment, or a security deposit. Check your credit reports at least every year to ensure that errors aren't dragging down your score.