Credit scoring is a big issue in the financial industry and the loan shop. A bad score can mean that you have to pay a higher interest rate while a good score can save you thousands of dollars a year. But the question remains, “What makes up a good credit score?” It seems like every company or lending institution has their own concept of what makes up a good credit score.
For all practical purposes, lenders consider a good credit score of 700 is thought to be good and a credit score of 800 is thought to be excellent. But there is so much more to credit scoring than just what is bad and good. And do not forget that there are three major credit scores that lenders can look at. Here are some things that you will want to know about a good credit score and what you can do to keep your score looking great.
Understanding the Two Major Types of Credit Scores
There are several types of credit scoring that really matter.
Looking at the FICO
Experian reports that nearly 66 percent of Americans have a good FICO score or better. Lenders consider a good credit score to begin at 670 and can go as high as 850, which by that level you would have an exceptional credit score. FICO scoring is broken down into the following ranges.
- 350 to 579 is considered very poor.
- 580 to 669 is considered fair.
- 670 to 739 is considered good.
- 740 to 799 is considered very good.
- 800 – 850 is considered exceptional.
FICO scores are a favored way of determining eligibility and a probable interest rate for a new loan. Lenders consider a good credit score to fall in the 740 to 799 range.
Looking at the VantageScore
VantageScore is a method of scoring people’s credit that was developed by the three credit bureaus. The scoring range is similar to FICO but with different terminology.
- 350 to 549 is considered very poor and 16.7 percent of people fall into this category.
- 550 to 649 is considered poor and 34.1 percent of people fall into this category.
- 650 to 699 is considered fair and 18.3 percent of people fall into this category.
- 700 to 749 is considered good and 12.6 percent of people fall into this category.
- 750 to 850 is considered good and 30.3 percent of people fall into this category.
Overall, lenders consider a good credit score to be important because it can help you save money by qualifying for a lower interest rate.
Top Ways to Improve Your Credit Score
There are some everyday things that can do to improve your overall credit score.
- Review your credit score on a regular basis. An abnormality or inaccurate report can affect your credit score when you shop personal loans.
- Inaccurate information should be reported and disputed in a timely manner. The burden of proof will fall on you. This means that you will need proof of payments or receipts that backup your story.
- Pay accounts on time. This is one of the easiest ways to raise your credit score. Lenders really like to see that payments are made on time and done consistently.
- Try not to borrow or get far into debt. Your debt to income ratio can really affect your credit score in a negative way.
- Avoid opening new accounts. The temptation to open a new account because of a deal makes sense. But in the end, your credit score will be lower for many years to come.
- Longevity matters. Lenders like to see how long you have been with certain companies. The longer you are with a certain lender means the higher your score will be.
Your credit score is something that can save you a lot of money or it can cost you greatly. Take the time and work on your credit score. Make it a goal to have the score fall into the good or excellent range. You can improve your score by following the simple steps and keep your score within the desired range. Lenders consider a good credit score to be the normal standard when issuing competitive interest rates to borrowers.