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What is Considered a Good Credit Score? |
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They say your record, good or bad, always precedes you. That adage is never truer than when talking about credit. Do you pay off your American Express credit card every month? Do you have outstanding student loan debt? A good credit score is your track record; your report card if you will. It lets lenders know how much, if at all, they can trust you to pay back what you owe.
The FICO credit scoring system is your final grade. But unlike school, this grade is always changing to reflect your positive or negative financial actions. Disseminated through credit reporting agencies to potential lenders, your FICO score comes into play when considering extending you a line of credit. Say you want to open the American Express Credit Cards PLUM Card—an excellent business credit card—to help start your small business. Your FICO score will determine your interest rate.
The number one factor affecting your credit score is your payment history. Payment history accounts for more than one third of your credit score, and it is the area that will hurt your score the most if it is derogatory.
The amount of outstanding credit you have affects your score by nearly 30%. Your balances, in relation to your total available credit, are key factors. If your credit lines are all near or at their limit, it will negatively affect your score. If you have a large amount of unused credit available, and low balances, it shows self-control and will affect your score positively.
Other factors that may affect your FICO score are the length of your credit history, the types of credit lines, the amount of new credit, and even the number of credit inquiries. So while a business credit card like the American Express Credit Cards PLUM Card may seem like an essential, consider your other credit applications—small business loans, student loans, car loans—before applying.
FICO credit scores range from 300 to 850. A FICO score of 700 or higher demonstrates very good or excellent credit. People who achieve FICO scores in this range are considered by most lenders to be a good credit risk, and at lower risk of defaulting on a loan. Credit scores of 720 and higher will usually be offered favorable loan rates and terms, with lower fees.
Credit scores ranging from 680 to 699 are considered good; people in this range can usually get decent loans on good terms. At this level, you would still be considered a good credit risk.
People with scores ranging from 620 to 679 are considered to have "OK" credit. Loan rates, fees, and terms will usually not be as nice at this stage.
Bad credit generally begins at a credit score of 619 and below. At this stage, your offers and options decrease significantly, and you will need to work to repair your credit score.
People who have good credit scores stand to save hundreds of thousands of dollars in their lifetime. The amount in mortgage interest alone is usually the bulk of their savings, but the benefits of good credit may reflect in other areas.
Lenders are constantly soliciting people with good credit with low interest loans, high interest-yielding accounts and low-interest credit cards. So when you do get that business American Express credit card, you will be eligible for the best rates, offers and deals.
People with higher FICO scores will have more borrowing and investment opportunities than those who do not. Your credit score often directly affects insurance premiums. Even prospective employers may consider your credit score in determining your suitability for employment.
The best way to achieve a good credit score is to establish a good payment history, pay down your debts, monitor your credit, and exercise discipline and good judgment when it comes to spending. That way you will always get straight A’s. | | | | |
