Good Credit Score: A credit score is a number that lets lenders determine the credit report of an individual and measure their credit risk. The credit score is complex as we experience the economic ebbs and flows of the lives, subject to constant change.
The keys to the (consumer) kingdom are good or excellent credit ratings, but a bad one can throw you into the financial wilderness.
A credit score is a number that covers your financial history. It shows your creditworthiness including your record of borrowing, missed repayments, bankruptcies, foreclosures, court judgments, and many other important factors.
The most commonly used credit score is known as the FICO score which was invented by the Fair Isaac Company. It goes from the range of 300 (the worst) to 850 (the best).
Bad – 300 to 650
This range, also known as “subprime,” reflects the so-called “bad behavior” of a consumer, which occurs (broadly speaking) when a credit agreement is not met.
It warns creditors that your payments may be in trouble. If you have trouble handling your loans, it is imperative that you warn your lenders and ask them to make new arrangements, such as longer repayment periods or lower interest rates.
If you have bad credit, you will have little or no access to credit, and you will be saddled with sky-high interest rates even if you are able to gain access. Miscredited people often turn to pay-day loans when they want to borrow money, creating the opportunity to fall into continuos repayment debt
Fair – 651 to 700
Fair credit is not totally bad. Instead it is at or just below average. You can easily fall from the good to the fair category if you have any record of late payments and being in too much debt. Normally, consumers with fair credit scores can access credit, though they bear the cost of high interest rates and limited credit lines.
People with fair credit will perhaps be limited to credit cards with average rewards, but should avoid cards which are specially designed for consumers with bad credit.
Good – 701 to 759
Around 17 percent of customers fall into the category of good credit rating. You will get plenty of credit card offers with a score in this range, qualify for loans with good rates, and pay lower insurance premiums.
If you have good credit and equity in your home, you are likely to qualify for a credit line of home equity, which is a rotating credit account backed by your home. You just pay for the credit you use with these loans, and you can recycle the money you lent and repaid. You never have to pay interest if you never borrow from the board.
Excellent – 760+
You get the best credit card, car loan and home mortgage rates at this level. Above 720 is generally considered a “perfect” score.
If you have excellent credit, you will have access to special car leases and loans available only to very qualified customers. For the approximately 40 percent of consumers with a credit score above 750, obtaining credit should not present a problem.
Good Credit Score
A good credit score is an important financial asset. For these reason:
Access to Credit
Good scorers can can help you access the best interest rates. They can qualify for credit cards that provide appealing benefits and comfortable maximum spending limits.
Banks will be really happy to offer you a mortgage, and automakers will provide you with reasonably-priced financing for auto loans or leases.
Having access to credit implies also that you will be able to borrow more. You will qualify for greater loans and higher credit card limits. You will find it very easy to qualify for a mortgage or a home equity line of credit.
It will also be easy to secure a peer-to-peer personal loan, in which individuals lend money to borrowers mediated by a peer-to-peer website.
Lower Interest Rates
Not only can you access more credit just by having a good score, you’ll also be able to get loans at a better interest rate. While it is true that the very best rates are kept specially for those with excellent credit, the rates for consumers with good scores are not shabby.
Compared to people with fair credit, you may save hundreds or even thousands of dollars in interest charges each year, depending on how much you borrow.
If you are out to rent an apartment or house, you will find that most landlords check out your credit history before offering you a lease.
A good credit score requires a good credit history, which makes it much easier to pass muster and get the rental you want without wasting a lot of time trying to find a less choosy landlord.
The rental story also applies to employment. Normally, it seems logical to assume that a prospective employer would rather hire a candidate with good credit rather than poor credit.
A good credit score shows your prospective employers that you have the ability of living within your means and manage your finances responsibly.
Moving up to a good credit rating will help you qualify for lower car insurance rates, because insurers have found that people with bad credit file more claims. You also might be able to open utility accounts or secure mobile phone contracts without having to put up a security deposit.
Insurance companies have two major ways of making money. The first way is to accept government subsidies. Secondly, is setting premiums commensurate with risk. In the automobile insurance market, research shows that drivers with bad credit scores are more likely to file claims.
We can speculate why this correlation exists, but more to is is that you gain by getting lower premiums with a good credit rating.
Starting a Small Business
Even if you have a great business idea, banks and other lenders may not consider you if you have a poor credit score. Some commercial lenders might still offer you a loan if you have a bad credit, but the interest rate will be high and you might have to put up a great amount of collateral. You also might need a cosigner.
You can actually avoid these indignities by keeping a good credit rating.
How to Get a Good Credit Score
Having a good credit habit which is obtained by consistency can help build a Good score. This is how to get it:
- Pay your bills on time, all the time. This is necessary because your payment history has the largest impact of all the factors in your score.
- Use credit subtly. Keep your credit card balances below your credit limits. Do not go higher than 30%, and staying lower is better. This factor known as credit utilization, has the second-biggest influence on your score.
- Keep credit accounts open unless there is a really compelling reason, such as high fees or a poor service, before you consider closing them. Having your older accounts open helps the average age of your accounts, which is an influence on your score. Also, closing an account eats into your overall credit limit, driving up your credit utilization.
- Avoid making lots of credit application in a short while. Credit checks for credit decisions can cause a small, temporary dip in your score, and several in a short time can add it up.
- Monitor your credit reports and dispute information you believe is incorrect or too old to be included (most negative information falls off after seven years).
What is the Highest and Best Credit Score Possible?
This article sees having a good credit score, explained how to achieve it, conditions that can threaten it, and emphasized the importance of having it. Whatever your score, it is pertinent to manage your finances responsibly and to live within your means.