What Is Considered A Good Credit Score

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Credit scores have become very important in the modern world we live in today. Just like dating agencies use customer profiles to enable them to make the perfect match banks and other lenders use a persons credit score  to match them with the best suited loan or mortgage products. In this way the banks and credit card companies can determine the level of risk involved in lending money and decide whether or not to accept the application or change the terms of the loan based on the persons credit history.

So, what determines a good credit score? The answer to this question is better understood by explaining how the credit score is calculated. The main credit bureaus include Experian, Equifax and Trans Union and these agencies collect various amounts of financial data to compile a person's credit report. In this report will contain a their personal details and information relating to their credit history. The report can also contain negative details such as debts outstanding and bankruptcy. This data is then collated to produce a persons credit score.

How Your Score Is Measured

The credit score is measured or ranked on what is called a credit score scale. There are a number of  credit scoring systems being used by financial institutions but the most common one is the Fair Isaac or FICO scale which uses a range between 300 and 850. The lower the score is ranked means the banks will consider that person more risky to lend to. The higher up the scale the less risky that person will  be. In the current economic climate a score that is 700 and above is considered a good score. If you have a score that is 600 then you should aim to increase it to 720. Scores between 750 and 799 are considered to be very good and anything between 800 and 850 is considered excellent.

To recap,credit scores that fall below 600 are considered bad to terrible. People with these kind of scores will either have a large rejection rate when it comes to making loan or home mortgage application. If they are successful in getting a loan they are highly likely to be charged higher interest rates and imposed with stricter credit terms such as higher deposits.

How The Difference in 100 Points Can Cost You

The mid range between 600 - 699  is considered below average to good. Even though banks can interpret the results differently a credit score within the mid range will not guarantee that you will get a loan or mortgage handed to you on a plate. You will have a higher success rate in securing credit compared to a person with a score of 500 but more than likely you will be charged a higher a rate of interest. For example,the difference in 100 points could cost you an extra $40 K over a 30 year mortgage. That is definitely worth thinking about.

Between the 720 and 850 range banks will consider you as a safe bet to lend money to. In this high ranking club you can qualify for the best deals in relation to cheaper interest rates and credit terms. Which, as pointed out earlier can save you a lot of time, hassle and money. Therefore, it is important that you check your FICO credit score before you apply for any substantial amount of credit.

Options To Improve Your Credit Rating

If you do find that your credit score needs to be raised then, there are a number of restore credit score options that you can use. The first step is look at your credit report and check the information to see if it is up to date and correct. If any data is inaccurate such as outdated bad debt entries could be lowering your score and you should report it to one of the credit bureau agencies to have it removed. Other ways is to ensure you clear your outstanding debts on time and limit the amount of money you borrow.

The important thing to remember is that the credit score is not there to help you but to help the banks and other lenders to determine whether they should lend to you or not.