What Is A Good Credit Score?

The Role of Credit Score and the Importance of Having a Good Credit Score

This is a three-digit figure used to evaluate the probability of repaying the given credit. Also known as a FICO score, the credit score is an indication of creditworthiness and is provided by the three main credit bureaus: TransUnion, Equifax, and Experian, and ranges between 300 and 850 where the highest is the best. A good credit score is crucial since it is used in the eligibility of credit facilities such as loans, and credit cards besides, it shapes the rates of interest to be paid.

A good credit score is considered to be anything above 700 according to the.

In the US, a good credit score is anything above 700 according to the.

A credit score is the evaluation of various factors to come up with a score for an individual. Generally, a FICO score of 670 or higher is regarded as a good one, and a FICO score between 740 and above is very good. Here is a breakdown of the credit score ranges:

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

Hence, the more you score on your credit, the more you will be in a position to get better interest rates and better loan terms. The lowest rates are popular with lenders and credit card companies are typically offered within the good to very good FICO range. When it comes to loans and credit cards, an excellent score is a great starting point to get approved for a particular loan or credit card.

Why Your Credit Score Matters

Credit scores provide a summary of one’s financial responsibility and can affect almost every aspect of his/her financial life. Here are some of the key benefits of maintaining a high credit score:

Better Terms – You can easily access credit cards, auto loans, mortgages, and other credit facilities at higher credit scores than with low credit scores meaning you’ll get better terms.

Credit terms - Besides the possibility of receiving lower rates, a good score allows you to get increased credit limits and decreased fees.

Better chances of employment - Credit reports and scores are perceived by some employers as the representation of the ability to be responsible and to maintain discipline. The ability to manage one's credit well may afford one an advantage under the existing system where employers look at one's credit report before hiring him.

Probability of approval – Credit cards, as well as loan applications, can easily get approval and better terms and conditions if one has a credit score of above 700.

Higher chances for consumer credit - A favorable credit record and credit score enable access to credit that would otherwise not be extended to consumers with low scores, for instance, rental housing.

A credit score is a numerical representation that reflects a borrower’s creditworthiness, but few consumers know how the calculation of this all-important figure is done.

Credit score calculations are very complicated even though most people only see them as simple numerical values. According to FICO, the following factors make up your score:

1. Payment History (35% of your score): When you used credit accounts such as credit cards, retail accounts, installment loans, or mortgage loans, whether they were paid on time. The recent payments are more important than the previous ones despite having made the payments for many years.
2. Credit Utilization (30%): The total amount you have charged on all your credit cards and the total available credit limits on those credit cards. Utilizing your credit limit by more than 30% is dangerous since it is likely to lead to a drop in your scores.
3. Length of Credit History (15%): A good credit score is usually reached if one has been a credit user for most years and one’s repayment record is good. But indeed, one may have several very good scores even if his credit history is not as long as that of other borrowers.
4. Mix of Credit (10%): Credit cards, retail accounts, installment loans such as auto loans, mortgage loans, and it is important for one to have a diverse type of credit.
5. New Credit Applications (10%): Any new credits, loans, or credit card applications that you have applied for recently will also affect your score.

Useful information that you can follow to enhance your credit rating.

If your credit score is not yet in the good to excellent range, here are some helpful ways to improve it: 

Ensure all your payments for credit cards, loans, or any bill after this are made on time – As you continue to make future credit card, loan, and or any kind of bill payments on time, your credit history will eventually reflect such a positive change.

Minimize the use of credit cards – The more money owed on your credit cards than your total available credit, the lower your utilization rate will be. That is why it is important to keep this below 30% which will help to boost your score.

Do not close old credit card accounts – Credit card companies look at the amount of time your accounts have been opened. Do not close existing accounts but rather keep them active.

Avoid applying for credit frequently - This means that if you are looking to apply for credit, try and do so sparingly within a single month. It is important not to unnecessarily apply for credit.

Dispute credit errors - In case you find some negative information on credit reports that is affecting your score, contest the information with the credit reporting agencies.

Monitor credit report – It is a good practice to go through your credit report regularly to avoid missing out on mistakes or instances of fraud.

Take your time – No steps will help you to increase or decrease your score in one day, but by doing things right, your scores will change for the better in the future. Keep up positive habits.

The Bottom Line

A credit score of 700 and above is considered good as the credit scores will allow you to access credit products at reasonable interest rates. When we speak of credit, the higher your score, the more advantageous you are when it comes to paying money for loans. This post has therefore sought to demystify how one can maintain a healthy credit rating since activities such as checking your credit report frequently, modeling good long-term behavior, and doing good things to factors that affect your score are important.

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