What Makes a Good Credit Score?

Understanding how credit scores are calculated can affect your financial decisions. Under the FICO scoring system, a credit score ranges from a low of 350 to a high of 850. These numbers are used to represent a person’s credit history or “credit worthiness”. In this article, let’s discuss the basic points that you should know about your credit score.

Factors that Affect Your Credit Analysis

Your total credit score is based on five main factors that are included in your credit report. These are the following:

• timeliness of your payments
• the amount of debt and types of your credit
• your credit limit usage
• length of your credit history
• public records

Under the public records category of your report is where court judgments (bankruptcy, tax liens, foreclosures) and other negative remarks (if any) about your credit are written. Of course, any of these negative remarks, particularly a record of bankruptcy can dramatically pull down your credit score.

Timeliness of payment comprises about 35% of your final score. That is actually the biggest percentage among all the criteria given. Next, is the amount of your debts and the types of credit you have which makes up 30% of your score. Having several different types of credit or account under your name doesn’t guarantee that you’ll get a high rating. It would still depend on your current financial status, your debt-to-income ratio, and how well you keep up with your payments. Thus, it’s clear to see how even occasional late payments can badly hurt your credit.

How Lenders View Credit Scores

Different companies and lenders have varying standards of what a good credit score is. There may be a difference of 5 to 10 points for each lending company’s standard of poor, fair, good and excellent credit. Thus, bear in mind that a single late payment can also make a difference in the score you’re aiming. To be sure that you’ll be in good standing, it’s best to achieve a score that is higher than the boundary or limit.

Typically, a score of 700 or 750 and above is considered as excellent. Banks and lending companies strive to acquire customers with an excellent rating. Having an outstanding credit score gives you the power- as a borrower, to demand for lower interest rates and better deals. If you’re enjoying a credit score this high, use it to your advantage. Always negotiate before signing up with any lender.

A score of 650-700 is still considered as a good rating by many lenders. You should have not problem getting approved although not all lenders may give in to your demands for a lower rate. Consequently, 500-640 is a fair or an acceptable score. However, some lenders may charge higher rates and fees for such customers.

Obviously, having a score of 500 and below would automatically make you a high-risk borrower. Most lenders reject customers with very low credit scores although you can find sub-prime lenders who offer approval in exchange for higher interest. Also, you may find that your contract would have more restrictions than the terms offered for people with outstanding credit.

Liz Roberts is a freelance writer and loan consultant. The website BadCreditResources.com offers resources that specialize in providing bad credit loans and credit cards for bad credit.