Cut-Off Score

WHAT IS ‘Cut-Off Score’

A cut-off score is the lowest possible credit score one can have and still qualify for a loan. Cut-off scores vary widely depending on the loan and lender. Cut-off scores for credit cards and other high interest loans tend to be lower.

BREAKING DOWN ‘Cut-Off Score’

A cut-off score is different from one loan to another, as well as from lender to lender. For example, some home loans require a minimum FICO score of 620, while others may accept scores less than 620.

Anyone applying for a loan that has a score below the cut-off score is usually rejected. The lender does still have the liberty to approve the loan if it so desires with an override approval. While anyone with a credit score above the cut-off level is usually approved, it is not guaranteed.

Cut-Off Scores and Credit Scores

In order to stay above most cut-off scores, you must understand what a credit score is.

Your credit score is statistical number that is based on credit history and evaluates your creditworthiness. A person’s credit score ranges from 300 to 850; the higher the score, the more financially sound a person is considered to be. There are various credit-scoring systems, but FICO score is the most commonly used.

You can build up your credit score by maintaining a long history of paying your bills on time and keeping low debt. Payment history counts for the largest percentage of a credit score at 35% and is considered the greatest indicator of whether an Individual will repay his or her debts.The rest of the score is 30% based on the amount owed, 15% on length of credit history, 10% on the mix of credit and 10% on new credit inquiries.

An individual’s credit score is used in a variety of circumstances outside of a traditional loan or credit card. A person’s credit score may determine the size of an initial deposit required to obtain a cell phone, cable service or utilities or to rent an apartment.

Having good credit can do more than get you the loan or credit line in the first place; it can also land you low interest rates, making it so you pay less on those lines of credit. Conversely, if you are above a cut-off score, but still have a low credit score, you may be approved for the same line of credit but at a higher interest rate, costing you more money over time.