- 7 17 Staff
What Is A Good Credit Score?
Your credit score is an important financial asset and can affect many of your financial decisions, such as if you get approved for an auto loan, mortgage, personal loan or credit card. However, you may be wondering, “What is a good credit score, and what exactly factors into my credit score?” We’re removing the mystery surrounding credit scores and digging into how they’re calculated.
How does credit work?
Credit scores are based on your credit history and represent how likely you are to pay your bills on time. But what is a good credit score? Generally, a credit score of 670 and above is considered good. However, there isn’t an ideal magic number that guarantees you’ll receive better interest rates or loan approvals.
When applying for new credit, lenders and creditors will look at your credit score to determine your interest rate and credit terms. Therefore, your credit score can have a huge impact on how much you end up paying over the length of your loan.
What is a good credit score?
There are a few different credit score models available with different ranges depending on the scoring model. However, most credit score models are similar to those listed here. Credit scores go up to 850, with ratings ranging from bad to excellent.
- 300-579: This is considered a poor credit score. Those with scores in this range aren’t likely to be approved for loans or new credit. Those with a credit score in this range will need to take steps to improve their credit score before applying for any new credit.
- 580-669: This is considered a fair score. Individuals with a score in this range may find it slightly difficult to qualify for new credit because they’re considered higher risk by some lenders. Individuals with scores in this range are often referred to as “subprime borrowers” because they have negative information in their credit reports. Those who do secure a loan will have to pay higher interest rates.
- 670-739: This is considered a good credit score. Borrowers in this range are considered lower risk by lenders.
- 740-799: This is considered a very good score. Individuals who have a score that falls within this range may find it easier to receive approval for new credit, and they have a positive credit history.
- 800-850: This is an excellent credit score. Individuals with a credit score in this range are low risk and may have an easier time receiving approval for loans.
What factors affect your credit score?
The exact formula for calculating a credit score isn’t shared and also depends on the type of scoring model and the reporting agency, of which there are three: Equifax, Experian and TransUnion. It’s important to keep in mind that some lenders and creditors may not report credit information to three of the reporting agencies. They may report to just one agency, two agencies, all or none, so your credit score may vary depending on the reporting agency.
The factors that affect your credit score include:
This has the largest impact on your credit score. Making a payment late or completely missing a payment can stay on your credit report for at least two years.
Amounts Owed on Your Accounts
Try to keep your credit card accounts as low as possible. The lower your credit utilization, the better. You should aim for about 30% or less utilization. Higher utilization will affect your score, but any damage to your credit score will improve as you reduce your balance.
Length of Your Credit History
This is how long you’ve had credit for. The longer your credit history, the better. It’s also important to keep your credit accounts open unless there is a really good reason, such as high fees, to close them. Keeping older accounts open demonstrates you have a long credit history.
Your credit mix is the different types of credit you have. It includes student loans, credit cards, auto loans and other personal loans. Having multiple types of credit is good and indicates you’re more creditworthy than those who have only one or two types of credit.
When you’re applying for new credit, the creditor or lender will look into your credit report. Multiple credit inquiries on your accounts within a short period of time could indicate financial instability.
Prepare for your future.
Your credit score is important when you’re making large financial decisions, such as applying for a mortgage loan or auto loan. Make sure you prepare for these important milestones by finding out how to improve your credit score today.