What Is The A Good Credit Score?

Understanding the meaning and importance of a good credit score

A credit score is a quantitative measure that represents an overall rating of your creditworthiness and your credit performance. It is used in the evaluation of the credit and loan facilities to approve or disapprove your credit, as well as in the determination of the interest rates to be charged. It is crucial to keep a good credit score as this will enable one to get the best loan terms and the best interest rate on the loans. Keep on reading to get some information about what constitutes a good credit score and the reasons why it has such a great value.

The exact credit score that is considered excellent varies depending on the rating scale used by the credit bureaus.

Credit scoring ranges are typically from 300 to 850 or sometimes 600. That is, providers of credit services consider scores equal to or higher than 720 as excellent, which should help you secure the most favorable loan terms and interest rates. The range of a fair credit score is between 580 and 669, while a poor credit score is any rating that is less than 579. Here is a basic breakdown of the credit score ranges:

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

As you can see the higher the score the better, and the more questions you get right the closer you come to the answer. Increasing a score that has already been categorized as good to exceptional by even one more rating can save quite a lot of money on loans and credit cards in the long run. Here, it is crucial to understand that even minor discrepancies in scores may affect the rates and conditions feasible for obtaining.

How is Your credit score calculated?

The methods used to calculate credit scores can be complex, but these five core factors make up the majority of your score:

Payment History: Whether it is good or bad: whether you pay your bills and debts on time or you don’t pay at all. This is usually the most significant element that is used to determine the credit score, contributing to 35 percent of the FICO score.

Credit Utilization: The sum of all your credit limits divided by the sum of the balances on all your accounts. For instance, if the balance of your card is $ 5000 and your total credit line is $ 20000, then the credit utilization percentage is 25 percent. Lower percentages assist in increasing the scores.

Credit History Length: However, this is a general rule, the longer your credit history, the better for you. This is seen when you have been establishing accounts for many years; this shows that you are capable of handling credit in the right manner for a long time.

Credit Mix: Having different types of credit facilities like credit cards, installment credit, mortgage credit, and so on in its credit report can assist in proving to a credit reference agency that the credit seeker can manage different types of lending products.

New Credit Applications: Applying for many new accounts in a brief amount of time, even when it is for good reasons, can decrease your score, as it is seen as a higher risk.

Trans Union, Experian, and Equifax are three credit reference agencies and the fact is that all three calculate credit scores in a different way which means that a single credit report can result in three different scores. While there will normally be slight differences between them, this is not always the case and they are normally very close.

Why Credit Scores Matter

Here, I will emphasize that your credit scores affect much more than just the interest rates. Failure can for example disqualify you from getting a house, a job, insurance, or any other service you desire. Landlords or owners, insurance providers, and employers use your credit score to assess your level of maturity and financial discipline. This is the reason many conduct credit checks on applicants.

This means that people with low credits have to make higher deposits for utility bills, cell phones, and any other facility they want to access. At times, the score even leads to the complete inability to open an account of any kind at the desired company.

Higher interest also means that interest charges on loans and credit cards could easily be in thousands more when compared to the life cycle. For instance, a $ 250,000 mortgage with a small interest rate of 3. 5 percent means that you will be paying about $ 860 every month. For subprime borrowers, the increase is even steeper, rising to 5. 5 percent monthly payment of $1,074, nearly $230 more than the standard rate. Based on this calculation, she ended up paying more than $84,300 in interest over more than 30 years.

That is why it is crucial to understand that having low scores leads to higher costs and no access, which is why it is essential to maintain good credit at all costs. Positive credit scores help one to avoid paying a lot of money while at the same time increasing his/her access to credit whenever he/she needs it.

Learn the basics of credit scores & reporting: Tips on how to increase your credit scores

For those who do not have impressive scores, one can always work on getting them up, but this will take time. Here are some top ways to start:

Look for any errors – Faults lower your average, so you should check your credit reports from the three major agencies annually. In case of any mistake on the reports, it is automatic that one will dispute the issues with the bureaus.

Balance – keep the balances off your credit cards as near as possible to zero as you can. Reduce credit card balance and other credit cards with revolving credit.

Use installment credit or mortgage – If your only credit is credit cards, then try an installment loan or mortgage. This is evident in the fact that using the different types of credits responsibly has been proven to be safer.

Minimize the number of hard inquiries – Do not apply for credit frequently since this will affect one’s credit score. When it comes to multiple applications, one can hardly stay indifferent when they are submitted in a relatively short time.

Request for credit line enhancements – It is easier to work towards having high utilization ratios and in turn scores when one has increased credit lines. They only pointed out that one just should not look at the increases as a rationale for spending more.

Maintain good payment records – Always make sure to pay at least the minimum amount and make payments on time. Pay any outstanding bills.

Let time do its work – Some negative items such as the payments that were made late and several other negative remarks may remain reported on your reports for up to seven years. Do not worry and simply wait as better habits will increase the numbers.

Besides the above, comparing your scores on your credit reports with your target score provides a clue on where to direct the efforts of improving the scores. Increasing your scores by a few dozen points is sometimes enough to get lower interest rates and more openings.

The Bottom Line

So, a credit score is not just a figure but an assessment of your financial responsibility and can significantly affect the expenses for credits. Getting a score of more than 720 provides you with the lowest possible rates and puts you on the right path to saving money throughout your lifetime. Check your reports, exercise good credit practices, and keep striving for consistency in greatness.

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