What Are Good Credit Scores?

Bad Credit Score-What You Should Know

A credit score is an incredibly important number that concerns each of us more than once in our lifetime. A credit score is significant in establishing one’s ability to access credit products such as credit cards, loans, mortgages, rental premises, and many others. It also determines the interest rates and the terms of credit that you will be offered. Well, everyone might have heard about a good credit score, but let’s discuss the meaning of the term. What’s more, how can you go about enhancing yours? Keep reading for detailed insight.

Defining Credit Scores

Credit scores are three-digit numbers that normally range from 300 to 850 and that are determined according to the data provided in your credit reports. The most widely implemented scoring model is the FICO which originated from the Fair Isaac Corporation. FICO scores are usually on a scale of 300 to 850. In general, the higher the score, the better, but such thinking can lead to increased stress among patients with chronic diseases. Yet, what is considered a good or a bad score? Here is a basic breakdown:

800-850 - Exceptional 740-799 - Very Good 670-739 - Good 580-669 - Fair 300-579 - Very Poor

As you can see, there are three categories: poor to fair, good to exceptional, and acceptable to very good. This is generally considered to be quite a bad score by most of the lenders across the country if not the entire continent. Nevertheless, various lenders are unique, and their deciding points or lines vary in several ways. It means that you will have to look up individually each bank and the creditors to find out what score ranges they accept.

The above information shows why it is important to maintain a good credit score.

The credit score is very significant as it forms the basis through which most lenders and others who may be willing to offer you credit assess your creditworthiness to determine whether or not they will offer you credit and if so, then at what interest rate. The more points you have, the higher the likelihood of getting the green light on your credit application and acquiring low interest rates that bring down your expenses. Some specifics include:

Credit Card Approvals – Credit card issuers regardless of their location all rely on credit scores in their decision-making process. People with good credit ratings are normally offered the best cards, with the best rebate rates and low penalty rates. The people who have bad credit are sometimes excluded or else they have to get a secured credit card.

Car Loans - Almost all auto lenders use credit scores to determine loan approvals and also the interest rate charge. Those with very good scores can guarantee low-rate auto financing hence cheap cars. Thus, if you somehow manage to get approved, you will be charged significantly high rates of interest.

Mortgages – While there is no minimum credit score that prevents a borrower from applying for a mortgage, most lenders have specific minimum credit scores they expect from borrowers who want to take on home loans. Mortgage interest rates vary with credit scores, where a higher score tends to attract lower interest rates on mortgages. And this is why efforts to boost your credit before applying for a mortgage can pay off and save you a lot of money.

Apartment Rentals, landlords, and property managers routinely screen the credit scores of applicants to establish whether they will pay their rent on time. Most come with standard credit score minimums, often ranging from good to great, as the prerequisite to approval. It was seen that those with poor credit risk getting denied or else demanded to pay an additional security deposit.

Insurance – Credit is also used in determining premiums for auto insurance, home insurance, life insurance, health insurance, and business insurance. As already indicated, excellent credit means enjoying low-risk premiums in all these significant policies. L2 wants to buy their coverage at a higher price than those with better scores.

As you can deduce from the above information, it is always worthwhile to effort to build and sustain very good to excellent credit scores in many fields of your financial life. Whether it is a simple credit card an auto a home loan or even other major purchases, you can get better interest rates and better chances of approval for credit if you have a good credit score.

The following is information on the key factors that can affect your credit score.

That being said, now you know that it is significant to have a good credit score, but what goes into the credit number calculations? Your FICO credit score is made up of five key factors that can be accurate for years. They are

1. Credit Rating – Whether the cardholder is in a position to clear his credit card dues, loans, etc., in full or punctually. They attribute it to this factor as the largest one with 35% of your total score. The inability to make payments on time or make them sometimes greatly impacts the scores. It is important to pay on time because it will help you build good credit.
2. Credit utilization is the proportion of the total available credit that a cardholder uses. Ideally, it should be kept below 30 percent - this is a general guideline that may vary depending on the specific circumstances of the individual business. Incorrect information such as maxing out cards affects scores.
3. Age/Length of Credit – Ideally, this is a continuous period of credit history which is good. It is preferable to start with some old established accounts on hand. A high number of new accounts decreases the average account age and thus leads to a downward trend in scores. Another is creating a long-term positive history, which enhances performance over time.
4. Total Accounts - Even though more accounts are desirable, having many tradelines is not beneficial to your credit score if you cannot handle them properly. Ideally, total accounts should be kept to a minimum of five except in certain important cases as seen below.
5. Some general guidelines are useful - Different kinds of credit accounts- This means that the lenders prefer to see that the borrowers have utilized credit cards as well as retail accounts, installment accounts, and maybe mortgages. Possessing such a healthy mix and managing the accounts well enhances the scores.

Understanding Credit Metrics and Improving Your Credit Rating

It helps in determining the current ratings, detecting any inconsistencies and irregularities, and even signs of identity theft. You can also request one free credit report every year from AnnualCreditReport.com, whereas you can get free scores at other sites like Credit Karma and Credit Sesame. MyFICO is an ideal place to get your legitimate FICO scores from all three major bureaus although they charge for it.

Here are some tips you can use if you are wanting to rebuild poor credit scores:

• Paying all the credit amounts, as and when the due dates arise every month.
• Reducing credit card and revolving payments
• The key is to avoid conducting multiple credit checks by only applying for necessary credit accounts.
• The second lesson, which can be derived from this story is that it is important to be ‘patient’ and allow good ‘history’ to build.
• Updating your credit status and rectifying any mistakes thereon

It is advisable to follow these credit tips and be consistent in the effort to build a financially sound credit profile. Ensure that the building of the scores is a core strategy. Ideally, the higher the goals set in those areas, the healthier one’s financial situation will be.

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