What is a Good Credit Score?

A good credit score is important to your ability to borrow money. In these tough economic times, a good credit score has become even more important. While it had been relatively easy to find money to borrow if you had poor credit, those doors have closed recently, and knowing what is a good credit score has changed.

Before we look at exactly what numbers qualify in the good credit score category, let’s look at the things that contribute to your credit score in the first place. The most important element of your credit score is your payment history. When you hear a creditor talking about payment history, they are considering how many of your accounts you pay on time, as agreed in the contract, how many accounts are in collections, and how many accounts are delinquent. When looking at delinquencies, the creditor will consider how many items you have past due, how long overdue they are, and how long it has been since you have had a past due payment. 

After considering your payment history, the scorers look at the amount of money you owe. They look at how much you owe on what type of account, how much of your revolving credit is already used, how much you owe on any installment loans, and how many zero-balance accounts you hold. 
Having more available revolving credit, and making regular payments on any installment loans will increase your credit score, making you a more worthy risk for lenders.

The next area considered in your credit report is how long you have had a history to track. They will consider how long you have had certain accounts open and the length of time that has gone by since the last activity on the accounts. If you have a good history for a longer period of time, you will have a higher credit score.

Next, the credit scores will reflect the types of credit you hold. They will look at installment loans, revolving credit, mortgages, and whatever other loans you may have. Having a variety of different types of loans, as opposed to only holding revolving credit, as in a credit card, will increase your credit score.

Finally, scores will reflect the number of accounts you have opened recently, along with the number of recent requests for new credit. Before looking to loan you money a creditor wants to be sure you haven’t recently opened new accounts you won’t be able to handle.

So, what exactly is a good credit score? 

Credit scores range from 340 to 850. The higher your score, the more likely a lender will be to loan you money at reasonable terms. The higher your credit score, the lower your interest rate for most lenders. Also, with a higher credit score, you have the advantage of shopping around for the best loan deal because lenders will be interested in doing business with you.

Usually, consumers with a credit score over 700 have more options available to them. Banks like to see numbers upwards of 700 because they can rest easier that these consumers will pay back the loan as agreed to in the contract. If your credit score is between 600 and 700, you may be able to find a loan, but you will likely be offered a higher interest rate. Lenders may also choose to offer you a smaller amount of money than you would like, leaving you reevaluating the purchase you are trying to make.

Those consumers with scores below 600 have a hard time finding money to borrow because the banks feel they are taking the risk of not being repaid for the loan. If they fear you may not pay on time or at all, they may offer you a secured loan or an extremely high interest rate. Sometimes these interest rates make repayment of the loan almost impossible.

There can be some confusion about obtaining your credit score. There are three credit reporting agencies: Experian, Transunion, and Equifax. Each of these three reporting companies will use the same factors in determining your scores, but each of their software may weigh different components of the score differently. Do not be alarmed if you find small discrepancies between the three reporting agencies. Those looking to loan you money will consider all three scores, and they will likely present your options based on the middle credit score.

If you have any questions about your credit score, talk to your lender. There are things you can do if you find yourself with a low credit score and needing to borrow money. First, be sure that the need is really a need. Don’t get into more debt and find yourself unable to get out. If you absolutely have to borrow money, consider working hard to pay off current debt. Being faithful about paying off the debt you have before you borrow more money will raise your credit score and give banks a little more confidence in their investment.

Having a good credit score is important to your financial health. Because the financial markets, and banks in particular, have taken a sharp downturn in recent weeks, the banks are being more particular about who they will lend money to. While it has been possible in recent years to obtain a loan or mortgage with less than good credit scores, the market is tightening. Knowing what is a good credit score can help you make sure you meet the requirements.

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