A good credit score is becoming more and more important in today’s day and age. A good credit score not only serves as a qualification requirement for certain loans, but it also determines whether you could be eligible for lower interest rates or more favorable loan terms.
When you want to establish utility services such as phone or cable, apply for insurance or even rent an apartment, most providers now look into credit scores to help them decide whether to let you obtain their service or not. Even employers are now looking at credit reports before they hire someone.
What Exactly is a “Good Credit Score”?
What’s a three-digit number that can either make or break your financial deal? Yes, you got it right, it’s your credit score! But what kind of credit score can be classified as a “good” credit score? Here’s a simple breakdown.
There are several different types of credit scores. However, the FICO ® score developed by the Fair Isaac Corporation is the most widely used credit scoring model. Generally, FICO ® scores range from 300 to 850. Here is a look at the FICO ® score ranges and their equivalent rating.
Credit Score Range : Rating
300 to 579 : Very Poor
580 to 669 : Fair
670 to 739 : Good
740 to 799 : Very Good
800 to 850 : Exceptional
It is important to note that a good credit score cut-off will vary depending on the type of financial institution that you are dealing with. Say for instance you are applying for a mortgage loan; to qualify for a mortgage loan your score must be between 700 and 759, for an auto loan your score must ideally be above 740, and to get the best rewards card you must have a score of 720 at minimum.
In addition, creditors do not just base their decision on credit scores. In addition to your credit score, creditors may also look at your credit history, debt-to-income ratio as well as assets and liabilities to determine if you’re a good risk or not.
Factors that Can Affect Your Credit Score
Generally, your credit score is determined by the following factors:
- Loan and credit card payment history
- Total debts and amount owed
- Credit utilization ratio
- Length of credit history
- Public records including bankruptcy, tax liens, and civil judgments
- Recent credit inquiries and activities
- Number of credit accounts
How Do I Find Out My Credit Score?
Checking your annual credit report regularly is one of the most important habits to develop if you want to improve your credit score. By verifying your credit record, you’ll be able to check for errors and discrepancies and dispute them when applicable. Checking your credit reports will also help you identify signs of possible identity theft, which is becoming more prevalent.
You can get your credit report at no cost once every 12 months from each of the three widely recognized credit bureaus (Equifax ®, Experian ® and TransUnion ®) from AnnualCreditReport.com.