What Is A Good Fico Credit Score?
Based on mathematically representing your risk as a borrower between 300 and 850, a FICO credit score indicates your capacity to make loan repayments. The lenders claim that the FICO scores fall between 300 and 850; the risk rises next to 300. On the other hand, what is a "good"—that is, the tolerable lowest FICO score? Generally speaking, scores of 720 or more are considered excellent; qualifying grades are recognized as good and over 670.
How FICO Credit Scores are Arrived At
Information from your credit reports kept at the three main credit reporting agencies determines FICO scores; there are others but these are the most often used. Using five main information areas, the FICO scoring methodology calculates your score:
Payment history (35% of your score): Whether again, you have timely payment of your bills, any delayed payment, any unpaid debts which are referred to the collection agencies, any number of bankruptcies, any number of foreclosures, etc., the newer and the more severe the delays, the greater is the harm done to your score.
Amounts owed (30%): This includes the proportion of the amount you owe presently on all the credit you enjoy in your credit accounts to the total credit limits. Paying all your bills on time and keeping a credit card utilization rate of less than 30% is also important for your credit score.
Length of credit history (15%): The length of time they have maintained active credit accounts. The time when the positive credit history is most important is when it is good and long since this will help to increase the score.
New credit (10%): The frequency of credit card and loan applications – The number of accounts you have recently opened and used. Multiple account openings within a short period can also affect the score detrimentally.
Credit mix (10%): Whether you have experience in handling various types of credit such as credit cards, retail accounts, installment loans, mortgages, and more Adept at handling various types of credit shows a healthy balance.
The concept of a good FICO score:
Here is a breakdown of different FICO score ranges and what they mean:
800-850 - Exceptional. You will receive the best interest rates from the lenders.
740-799 - Very Good. You will be first in line to get good rates within your market from most of the lenders.
670-739 - Good. The credit you will get will most probably come with average interest rates.
580-669 - Fair. You will probably still get approved but with highly charged interests.
580 and below is termed as Very Poor. You will be declined a credit rating or else, if approved, you will pay extremely high interest.
This generally assumes that any score above 700 is a good score in the eyes of most lenders. A score ranging from 670 to 699 means that you are considered a very good client and you should be able to secure most of your loans at reasonable interest rates. Having a score of 720 or above puts you in a very good to exceptional position when it comes to the interest rates offered by lenders.
Strive for Getting more than 700 Points
As much as credit scores work under this principle of the higher, the better, once you get a score above 700, you will be in a position to borrow at prime rates from most of the institutions. This means that as you move higher into the very good to exceptional category (720+) you will find minimal change in loan terms and rates of interest.
Most of all, any score above 700 should be the ultimate aim because that is when you can secure some of the best interest rates. This can translate into thousands of dollars in savings every time one is making big purchases such as car loans or even mortgages. The higher your score, the better your score informs lenders that you are indeed a low-risk customer likely to repay the loan.
The above steps are great ways through which you can enhance your credit score.
If your credit score is under 700, here are some tips to start improving it:
Ensure that you are up to date in paying all your bills from the time being forward. Automate payment of credit card bills and loans if that is required. Credit report which shows the payment status is said to affect the scores most.
Do not charge large amounts on credit cards, if possible, the best way is to reduce the card balance to 30% at most. Use the credit cards less and pay them down actively if your credit utilization is high at the moment.
Do not make simultaneous applications for new credit facilities. New hard inquiries and the opening of new accounts can for some time bring down scores.
Check for any errors on your report that might be a cause of a low score or any identity theft matters that need attention. Challenge them with the credit bureaus.
Consider signing up for credit monitoring or credit repair services that can assist you in noting the problem areas and checking your reports from time to time.
Older is always better when it comes to credit history so keep old accounts active instead of closing them. Another aspect that is taken into account when calculating your scores is the accounts’ average age.
Engage in responsible credit consumption through the use of credit cards. It is normal to experience increased scores as the years go by since, accumulating positive data in an individual’s record.
In the first place, it is important to get acquainted with the definition of a good FICO score. Consequently, it is a good idea to keep checking your latest credit score and follow credit best practices to make sure that your chances of getting over 700 and better loan terms are as high as can be. Keep track of your credit reports and FICO score movement as you start using the said credit behavior.
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