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What is a Good Credit Score

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Determining What is a Good Credit Score

When it comes to your credit, it’s important to know how you stack up. Do you have good credit? Excellent credit? Poor credit? How can you find out? In most cases, the easiest way to determine the health of your credit is to look at your credit score, a numerical value that reflects a mathematical analysis of your debt, your payment history, the existence of liens or other judgments, and other statistical data collected by the credit bureaus. In other words, your credit score is the compact, simplified version of your entire credit history, all rolled up into one tidy three-digit number.

Why Do You Need Good Credit?
The importance of having good credit can’t be understated. From helping you get a loan, to qualifying you for a great job, good credit simply makes life easier and less expensive.

In the eyes of lenders, employers, insurance agents, and a host of other people and entities, your credit score represents how responsible and even how ethical you are. For example, lenders look at your credit score to determine not only your ability, but your willingness to repay a loan. Insurance companies view an individual with a good credit score as someone who is trustworthy and less likely to commit insurance fraud. Employers look at credit scores as a way to determine whether a candidate will be a dependable new employee.

A bad score, however, can prevent you from being able to purchase a home, work in certain industries, and will wind up costing you a bundle in higher interest rates and fees. However, if you understand what hurts your credit score, you can make an effort to fix bad habits and improve your credit rating.

The Three Major Credit Agencies
Experian, Equifax, and TransUnion
There are three major credit agencies that provide consumer credit information (including credit scores) to the majority of interested parties: Equifax, Experian, and Transunion. Each reporting agency collects information about your credit history from a variety of sources, including lenders, landlords, and employers, as well as other sources. These includes public records, current and past loans, your payment history, and other data. They then rate your performance using a proprietary scoring system to come up with a credit score.

Because each agency may access different information and has its own formula for calculating your creditworthiness, it is not uncommon for someone to have three different credit scores.

Understanding Credit Scores
Your credit score is a three-digit number that, without context, may mean very little to you. Here is a breakdown of how lenders, insurance agencies, and employers all view your credit score:

Excellent Credit: Credit Score Above 800
If your credit score is above 800, you have an exceptionally long credit history that is unmarred by things such as late payments, collections accounts, liens, judgments, or bankruptcies. Not only do you have multiple established lines of credit, but you have or have had experience with several different types of credit, including installment loans and revolving lines of credit. You generally have a stable work history, usually with one company. More at What Is a Good Credit Score – Understanding Credit Ratings & Ranges

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Good Credit Score Range: A Must Know

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Learning about Credit Score Range

A credit score is very important if you are planning to take a loan, whether it is for a home mortgage, to buy a new or used automobile, or money that you need for any other purpose. What is a credit score? It is an estimation of how creditworthy you are. It is a mathematical estimation arrived at based on a detailed analysis of your credit files. So if your score is higher, then you are assumed to be more creditworthy, and as a result, the lenders would be comfortable to advance you the money you need. On the other hand, if your credit score is low, then you might be denied the loan, and even if you get it, the rate of interest charged would be higher. If you have a low score, the lenders assume that it is riskier to give you the money, and thus the higher rate.

So if you are planning to take a loan, you must know two things. You need to have some idea about the credit score range, and your current credit score. The credit score range will give you an idea where you stand, when you compare your own score with it.

FICO and the Credit Score Range
FICO is the acronym of the “Fair Isaac & Company”. This is the company that came out with the mathematical calculation based on which the credit score and the credit score range is determined. Credit score is thus often also referred to as the “FICO score”.

How Is the Credit Score Calculated?
It is calculated based on various factors such as missed payments, late payments, how many open accounts you have, length your credit history, negative events like bankruptcies and charge-offs and others like this. The points that make your score will be calculated based on all of these. Points are deducted each time someone else accesses your credit score. So never make that application to different companies, because if you do, all these lenders will check your credit score, and this will undoubtedly reduce your credit standing.

There are various credit rating agencies, and all of them have their own way of assuming the importance of each factor. This is why your credit score can be slightly different from one agency to another. But taken overall, the score can give an indication to the lender about whether you are creditworthy or not.

So now that we have an idea about the credit score, and understand how it is calculated, let us find out about the credit score range.

The Credit Score Range
The credit score range doesn’t start at 0 or 1, and it doesn’t end at 100 or 1000. It starts at the odd figure of 300 and ends at 850. So no matter whether you have a good score or a bad one, the credit score range will always be within 300 and 850. You should also know that your score is usually not constant – it will keep changing. For instance, if you have taken a home mortgage, your score will improve with each monthly repayment. Again, your score will slide if you fail to make the credit payment on time.

So here’s the credit score range:
Between 700 and 850 – Very good or excellent credit score.
Between 680 and 699 – Good credit score.
Between 620 and 679 – Average or OK score.
Between 580 and 619 – Low credit score.
Between 500 and 579 – Poor credit score.
Between 300 and 499 – Bad credit score.

So if you have a score around 750, then your application is definite to be approved. You will get very favorable terms too because you are among the most creditworthy people to any lender. If you are in the 680 to 699 credit score range, then too you can sure that your application for the loan will be accepted. Though there might be a single negative item against your name, but the lenders are likely to ignore this. More at What Is A Good Credit Score Range?

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Credit Score Range: Understanding the Different Credit Score Ranges

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Different Credit Score Ranges

Your credit score is important. Very important. That three-digit figure is so influential that it determines your eligibility for credit cards, home and auto loans, student loans, apartment rentals and even some jobs. It’s vital to know your credit score range so you can decide which loans to apply for, know when you’re settling for less than you could get and, if necessary, take steps to rehabilitate your FICO score. Your credit score gives lenders an idea of whether they can rely on you to pay back your debts. It follows that your credit history, past and present, is among the data that credit bureaus use to calculate your score. If you’d like to get a grip on your score’s implications, read on: the nerds will clarify the finer points.

Lower score, higher interest
More than determining your eligibility for a loan, your score affects the cost to you, too. In fact, the score and the interest you pay are inversely proportional, roughly at a one-to-one ratio. So, as you boost your score, your monthly payments will generally decrease at the same rate. Let’s say you want to get some new wheels. To finance your slick new ride, you take out a 60-month fixed-rate auto loan of $15,000. If your score is in the gutter, say a 610, you’d pay $357 a month, according to myFICO.com. The guy next to you in the lot, with the Ray Bans on, has a superb score of 800. His score is about 30% better than yours—31.15% better, to be precise—as his monthly payment, at just $277, a 28.88% markdown. It’s clear that you’d rather be that other guy, who pays on time and keeps his debts low. Because once you start digging yourself a hole with late payments, it becomes harder to climb out, with the high rates weighing you down.

Understand your FICO score
The breakdown of credit score ranges is as follows:

630: Bad credit
You likely landed her because of bankruptcy, or because you’ve missed payments consistently—or, as is often the case with younger folks, you have no credit history at all. You’ll face higher interest rates and fees, and your choice of credit card is restricted. If you find yourself in this bracket and still want a credit card, a secured card is likely your best bet.

630-689: Fair (average) credit
Your score is average, and it’s probably because you have too much “bad” debt. If you’re holding onto some credit card debt or if your balance often grazes your credit limit, bureaus won’t trust you, and therefore lenders won’t either.

690-719: Good credit
Your rates are low, and you can choose from most cards, including those that earn rewards.

720-850: Excellent
If you’re in this bracket, take a look at cards with great fringe benefits. American Express, for example, offers premium cards that better accommodate the ritzy life.

Although these four categories are the standard, credit scores are still somewhat fluid, especially since the recession began. Since 2007, scores’ effect on consumers has become more severe, too, according to Paul Oster, the CEO of Better Qualified, LLC, which specializes in business and consumer credit services. “The impact of scores has changed dramatically,” Oster wrote in an e-mail. “Consumer’s credit scores can cost or save them hundreds of dollars a month. The ‘magic number’ has been increasing since the ‘R’ [the recession]. I know that 5 years ago 620 was a good benchmark, then it went to 640, 680, 720, and now 740. The average credit score is around a 685. Remember that scores are fluid and changing all the time. Studies show that individuals with an average credit score would reduce card finance charges by $76 annually if they raised their score by 30 points.” More at What are the Different Credit Score Ranges? Bad to Excellent and Everything In Between

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