Everyone wants a good credit score. After all, when it comes to borrowing money, a great credit score is the key factor in determining the terms of the loan and how low of a rate you’ll actually get.
However, trying to figure out what exactly constitutes a “good” credit score isn’t always easy. In the world of credit scores and confusing numbers, people have various opinions on what is considered good or bad.
Credit Score Ranges
The majority of credit scores, including the infamous FICO score, function within the wide range of 301 – 850. Inside those numbers, the different categories range from very bad to excellent. Here are the credit ranges:
- 750+ Excellent
- 700 – 749 Good
- 650 – 699 Fair
- 600 – 649 Poor
- 599 or below Bad
However, even these numbers aren’t set in stone. Primarily because various lenders all have their own version of what makes a good credit score. For example, one lender that wants to approve a number of borrowers might decide to approve applicants with scores of 670 or higher, while another lender might be a bit choosier and only approve applicants with a credit score of 770 or higher. On the other hand, both lenders may extend credit to any individual with a score of at least 640, but charge clients with scores below 700 a much higher rate of interest.
Do You Know Your Credit Score?
Never just assume your score is good or bad based on how well you pay your bills. The only real way to determine whether your credit score is good or bad is to simply check it. CreditKarma.com is an excellent, cost-free site that not only reveals your credit score but offers helpful advice based on your particular level. It provides an insightful breakdown of the key factors that impact your score and recommendations for enhancing your credit in the future.
How Credit Scores are Generated
Credit scores are primarily calculated based on mathematical models, which work to decipher and evaluate data in your credit reports. Credit scores take into consideration certain factors such as your level of debt, payment history, and the overall age of credit accounts in order to determine what consumers who pay their bills on time have in common. Their main goal is to accurately predict how both new and current customers will manage their credit.
In the end, a credit score basically summarizes all the data in your report, which ultimately makes it easier for a lender to quickly process your loan application in order to determine how likely you will pay back the loan you are requesting.
The Benefits of Maintaining a Good Credit Score
Maintaining a good credit score helps you borrow money that’s necessary to purchase a home or car, or open a line of credit with a reasonably decreased rate of interest. This means you will pay less interest over the life of the loan.
Here’s something shocking to consider: An individual with poor credit purchasing a $300,000 home with a 30-year fixed mortgage, could literally end up paying over $90,000 more during the course of the loan than if they had good, or at least better credit.
The important thing is to vigilantly monitor your numbers and actively work to improve your credit score.
Featured Image: depositphoto/sindler1Posted on May 30, 2017