What Is a Good Credit Score?
There’s no such thing as a “good credit score.” Different loan and credit products require different credit scores, so establishing a single number as a “good” credit score is impossible.
But a credit score at the upper end of the scale is “good”, right? People with top-notch credit scores can say they have a “good credit score”, but you didn’t me to tell you that perfect credit is good, did you?
There are many different credit scoring systems all spitting out different numbers. There’s no way that your credit score at all three major credit reporting bureaus is the same, it just doesn’t happen. And because the credit range is different from company to company, there’s no single number you can point to and say — there, that’s it, that’s a “good credit score”.
Credit Score Range
But when you look at credit scores in a range, you can identify what a good credit score and a bad credit score are.
Here’s a good guide to determining if your credit score is good enough.
760 – 849
Excellent credit score. People at this level qualify for the best interest rates and loan terms.
700 – 759
This is still a wonderful credit score. People with credit over 700 should have no problems getting good loans and interest rates.
660 – 699
Good credit score. People with credit scores above 660 may not qualify for the best rates, but they will always qualify for a loan.
620 – 659
Average credit score. Most people fall in this range. They won’t get great interest rates but they probably won’t be turned down for loans.
580 – 619
Poor credit score. People with credit under 619 have a hard time getting loans or lines of credit.
Very poor credit score. There’s no chance that people with credit below 579 can get loans or credit cards.
Note that these numbers aren’t hard and fast. Some creditors may take a chance on a person with a low credit score, especially if there is collateral or some other backup system for a line of credit. Similarly, people with really high credit scores (700 or so) find that they don’t have access to some lines of credit because their score is “too good”. It is rare, but it happens.
So . . . What Is a Good Credit Score?
You could say that a credit score of 700 or higher is “great”, and that a person with a credit score of 650 or higher is “good.” Does it mean that these people will be offered loan products at the best interest rates? Of course not, but they’re far more likely to be offered the best financial products than people with a score below 600.
Credit Score 101
A credit score is nothing more than a mathematically generated number. Credit reporting bureaus use your credit information and a formula to calculate your credit score. This funny little formula analyzes data from your credit report to determine your score. This will be a number ranging from 300 to 850. Different credit reporting agencies use different formulas, which is why your credit score candiffer from one credit bureau to the next.
Your credit score is a number that reflects your “credit-worthiness”, or how likely the bureau thinks you are to make good on loans and lines of credit. It is meant to protect creditors from making poor financial decisions on customers who may not be able or willing to repay.
What goes into determining your credit score?
- Payment history – If you miss a lot of payments, or have missed big chunks of payments recently, your credit score will be affected. The good news is, as long as you start making payments on time, your credit score can improve quickly by making adjustments to your personal payment history.
- Amount you currently owe – Your credit score drops when you owe more money, and it rises when you owe less money.
- Credit history — This refers to the length of time you’ve been using credit responsibly. The longer you’ve been using a line of credit, the better — that’s why paid off credit cards or other lines of credit are best left open to increase your credit history rating.
- Applications for credit — If you apply for a lot of credit from multiple sources in a calendar year, your credit score drops.
- Credit mix — If you only have credit from one source, your credit score will be negatively affected. If you have loans from the bank, from a credit card company, and other types of loans and financial products, your credit score goes up. That’s why having a student loan, home loan, boat loan, car loan, and credit card is actually good for your credit score.
How Does My Credit Score Affect Me?
A higher credit score saves you money. Your interest rates will be lower if you have a higher credit score.
Let’s look at an oft-cited example of credit’s impact on your personal finances — a 30-year mortgage interest rate for a $300,000 loan —
credit score 760-850
Monthly payment $1,609
credit score 700-759
Monthly payment $1,650
credit score 680-699
Monthly payment $1,683
credit score 660-679
Monthly payment $1,724
credit score 640-659
Monthly payment $1,806
credit score 620-639
Monthly payment $1,913
In this example, a buyer with a credit score of 760 would pay $579,240 while a buyer with a credit score of 660 would pay $620,640. That’s a difference of nearly $45,000 on a 100 points variation on the credit score.
Your credit score is important. And more important than knowing if you have a “good” credit score is knowing if your credit score is good enough to secure the credit line you need.
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