What Is A Good Credit Score?

A Good Credit Score Is Important

It’s amazing how a 3-digit number between 300 and 850, called credit score can have such an impact on a significant aspect of your life – your credit. So, what’s with this credit score and why is it such big a deal to maintain a good credit score?

The big deal about having a good credit score is that lenders use credit scores to help them assess an individual’s credit worthiness. Whether you like it or not, your credit score is a huge determining factor of your ability to obtain a loan; the amount of credit you can carry; and the interest rates you have to pay.

Although scores can go as high as 850, which is considered the “perfect” score, very few people have ever achieved that. So, you’re not alone if you wonder: What exactly is a good credit score, anyway?

There really is no black and white standardization of what a good credit score is. However, it is believed that the typical average borrower has a credit score of 600 – 700; so generally, the very brief, non-scientific answer to that is – anything above 700 is considered a good credit score. A score like that can provide the best interest rates possible on mortgages and many other forms of credit. Apparently, that number can be somewhat dynamic depending on what the guidelines of the lenders state.  If you know your credit score is already horrible and are looking to fix it please read this article on credit repair services.  However, if you are on a very tight budget check out this article on do it yourself credit repair.

Your next question is probably, how does one get a good credit score – or a bad credit score, for that matter? There are various factors that come into play when determining credit score and how it affects your financial credibility. To get a better understanding of what a good credit score really is, take a closer look at these factors first.

As per FICO scoring model there are 5 different categories that are considered to determine your credit score.

•    Your payment history – is one of the most important factors that affect your credit score. Accounting for 35% of your total score, it is based on payment information on all types of accounts, such as retail accounts and credit cards. It also includes detailed information on late or missed payments; as well as public records of suits, judgments, collection items or bankruptcies. Emphasis is placed more on recent credit activities.

•    Your available credit vis-à-vis the amount you owe – is the next most important factor that accounts for 30% of your total score. Information considered here is the total amount you owe on all accounts, the account balances, how much of your total credit line or limit is used and other related information.  If you are just in way over your head and are looking to consolidate your debt then please ready my CuraDebt review.

•    The length of your credit history – accounts for 15% of your credit score. Longer credit history can add up to the points of your total score.

•    Opening several new credit accounts in a short span of time – which accounts for 10% of your total score is not helpful and can in fact hamper you from getting a good credit score.

•    The types of credits you use – considers the mix of credit types and total number of accounts you have. It accounts for the last 10% of your total score.

Your Credit Score and What Makes An Impact

With all these factors considered, how can your credit score gauge your credit worthiness? It depends on the type of loans you are seeking. For instance, a credit card issuer will likely give more weight on credit factors than a mortgage broker. Read on to get a clearer picture.

Credit Cards:  Credit card lenders put more weight on such things as the number of times you missed revolving credit payments.

Auto Loans: Auto lenders focus emphasis on “deal characteristics”. Taking into account things like how much you can put for down payment, your debt-to-income ratio, how long you’ve been in your job and similar information. Information about past credit performance for similar types of loans is considered. So a missed payment on your previous car can have greater impact than an overdue credit card bill, in this case.

Mortgage: A FICO score above 660 is likely to be an “acceptable” credit reputation and loan files only need basic and cursory review. It’s different if you have a score between 620 and 660, which may classify you as “uncertain” credit risk. You can expect a thorough review of your entire credit history with this kind of credit score. A credit score below 620 can indicate “high risk”; it may be perceived as an unacceptable credit reputation that could make traditional financing difficult to obtain.

Now that you know the importance credit score, it is time take steps to get a good credit score; know how to keep it that way, and even nudge it a bit higher.

How to Keep a Good Credit Score?

You must realize by now that your credit scores change with new information reported by your creditors. If you manage your credit responsibly, it should be easy to maintain a good credit score. Here are some general ways you can do that.


•    Always pay your bills on time.  One late payment can lower your score severely. Delinquent payments and collections can make your score dip as much as 100 points. If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score gets.

•    Use only a small fraction of your available credit and keep your balances well below your credit limit. This is what experts call “utilization ratio”. In a perfect world, as close to zero as you can get is the ideal balance. But in the present economic climate, this is near impossible. Creditors would be happy to see a 25% to 35% balance. A balance above 50% can really hurt your score. Keep it at 25% and you’re safe.

•    Don’t apply for and open new credit accounts all at once if you don’t really need them. It raises a red flag when you open too many accounts, because the conventional wisdom is that you’re going to use all those new credit accounts to borrow a lot of money and that statistically makes you a high credit risk. The issue isn’t whether you’re actually going to borrow to the hilt or not; it won’t matter either if you are able to pay all credits off. Creditors like to see consumers that use credit sparingly and judiciously so they are assured that the consumers won’t have any problems paying. The bottom line is if you have too many credit accounts, it can lower your credit score, period.

•    Regularly check your credit report for accuracy. Contrary to some mistaken notions, it won’t hurt your credit if you pull your own report. It can in fact help you boost your credit, if you use it to keep an eye for mistakes and identity frauds. Contact the creditor and the reporting bureau to correct errors, if you find any.

•    Don’t carry a wallet-load of credit cards – but don’t have too few either. A stack of credit cards may wow your neighbor, but it definitely won’t impress the lender. On the contrary, even credit rating agencies can get suspicious of anyone awash with credit cards. Conversely, having only one credit card – or none at all can likewise lower your score.

•    Treat credit as a safety net. A big indicator of your credit worthiness is how you use credit. People with a good credit score know that credit is for certain purchases, such as for home or a car; credit cards are for expense which are immediately necessary but are difficult to pay for all at once, like car repairs or home appliances; or for emergencies. Keep this in mind and decide whether you’re taking on a good or bad debt before you even think of using your credit.

You can still obtain a loan even with poor credit score. But the terms and size of the loan can be vastly different; mostly in the form of the required down payment or the interest rate you have to pay. There is a substantial difference in monthly payments, too, and the payments over the life of the loan. All these should be enough to convince you that a good credit score is indeed valuable!