16 Feb The A – Z Guide Of What Is A Good Credit Score?
What You Should Know About Good Credit Scores
Everyone is aware of the importance of having good credit. It affects your ability to get loans and even a job. But what is deemed as “good” credit? A lot of people don’t know that there are different levels, not just one measurement for it. There’s more than meets the eye with this topic!
So, what is a good credit score? A good credit score is typically one that is considered “excellent” or anything over 720. However, there are different levels to credit scores and they can be classified in three ways: first-tier credit scores, second-tier credit scores, and third-tier credit scores.
In this blog post, we will discuss what constitutes a good credit score, how to build good credit, and ways you can improve if you need some help in the future.
What Constitutes a Good Credit Score
So what is considered good credit? An excellent score of 720+ while having no late payments or derogatory items on the report would be considered great! This will give you a plethora of benefits including lower interest rates for things such as mortgages, car loans, and even credit cards if your card issuer does it that way.
They’re also more likely to approve someone with this type of profile because they have less chance of defaulting. This means lenders get paid back faster due to fewer missed payments overall. These types are always better options than being near-prime or subprime.
There’s still a higher risk associated with them despite not being quite bad enough yet in some cases. The best thing you can do is try out overtime to keep your score in the excellent range to ensure they remain this way.
Good credit is typically rated in three categories: first-tier credit scores, second-tier credit scores, and third-tier credit scores.
First-Tier Credit Scores 650 through 700
These types of scores make up the bulk of all credit reports. They’re decent enough for lenders who want a risk profile between subprime borrowers (300-549) and prime borrowers (660-850).
Most people fall into this category. About 80% of consumers have FICO® scores within this range. If you happen to fall into here then that’s awesome! You’ve got great possibilities ahead. Now more than ever, financial institutions are willing to give out loans with better rates due to lower default risks associated with them.
Second-Tier Credit Scores 601 through 650
If you fall within this range, your credit scores are considered “fair” to lenders. They might not seem like much on the surface. However, these types of scores can still get you good rates for things such as car loans and mortgages if other factors in your profile support it.
Although these scores aren’t anything special, most people with fair credit have no late payments or delinquencies associated with them. This gives them a better chance at being approved than someone who has poor credit (300-579) but also missed some bills along the way.
Just remember that having any major derogatory items will be difficult especially now since even prime borrowers are being turned down more often due to tougher lending practices.
Third-Tier Credit Scores 601 through 600
These types of credit scores are considered to be near-prime or subprime. It’s still possible for you to get loans with them if your other scores and factors in the profile support it. However, they’ll likely come at a higher interest rate than someone who has strong credit (700+).
They also may not even approve you outright because of the associated risk involved due to these types of profiles having many derogatory items such as missed payments and charge-offs on their report. If you happen to fall into here then some things can help improve your score over time!
How to Build Good Credit
Everyone worries about their finances at some point or another. One of the ways that you can ensure your good financial health is by building up a strong base in terms of your credit score. In this section, we will discuss how to build good credit from the ground up!
For lenders to determine whether they want to give you money or not when it comes time for them to decide on whether or not you should receive a loan, they’ll check out your report with one of the major reporting companies such as Experian, TransUnion, and Equifax. These reports have information about all of your loans, credit cards, payments, etc.
Your credit score is simply a numerical value. It represents how risky you are to lenders in comparison to the average consumer with similar profiles and demographics. This means it’s important for you to have an idea of what constitutes good credit so that if things aren’t looking up on paper then you can do something about it!
Maintain an Excellent Credit Score
The best thing you can do is try out overtime to keep your score in the excellent range. This means that you need to avoid missing payments, paying late, and defaulting on loans because each of these will make it more likely for things like delinquencies, charge-offs, collections accounts, etc. to show up on your report!
If there are any derogatory items associated with your account then they may be enough for lenders or creditors not even bother checking them out if they aren’t willing to work with subprime borrowers. However, some people end up falling into this category due to reasons beyond their control. These may include job loss or simply being overwhelmed by unexpected financial strains! If that happens don’t worry though because there are ways that you can work to build good credit again!
Best Ways to Build Your Credit
There are many factors associated with building up your score. These can include:
- Making payments on time and in full each month
- Keeping a low balance-to-limit ratio (credit utilization)
- Avoiding applying for large amounts of new credit within a short period, e.g., six months or less
Things That Negatively Effect Your Credit
In addition, there are also certain actions that you should avoid when it comes to maintaining good credit such as:
- Paying late or making partial payments more than once over one year
- Closing all accounts at once
- Getting multiple loan denials from different lenders
- Having your report sent for collections
- Not having a credit score at all!
By avoiding these activities, you can begin to build or restore your credit score, eventually landing in the excellent category once again.
What Factors Contribute to a Good Credit Score?
The main factors that contribute to a good credit score are your payment history, the amount of debt you have in comparison with what you make each month (your income), and how long it’s been since you’ve opened new lines of credit.
Lenders want to know if they can trust someone who is asking for money or not. Looking at these things will help them figure this out. They’ll also consider other information about an individual such as their employment status, age, etc.
All three of these factors weigh heavily on whether or not most financial institutions feel comfortable loaning any money out at all!
This factor accounts for around 35% percent of your overall profile. Be sure to give attention here when thinking about building good credit. This is the simplest of them all because it’s simply a matter of paying your bills on time each month!
You should always pay what you owe by the date that they give you to avoid late fees and other associated charges from coming through. These can do some damage to your overall score over time if not taken care of promptly!
Debt accounts for around 30 percent of a person’s total score. This means how much money they borrow against their income is going to play an important part in whether or not lenders believe that you’re worthy enough for additional resources such as loans and credit cards.
Make sure that this value stays but isn’t too small either. Don’t go around spending money you don’t have to spare. By doing so, you will avoid putting yourself in a bad financial situation!
Length of Credit History
The length that credit accounts have been open for is another important factor. This one makes up about 15 percent of your overall score. It shows that lenders can trust you with their products and services over time.
Certain things will help this number grow if need be such as making sure all cards and loans are paid off before opening any new ones or closing down old lines altogether! Working with a financial professional or CPA may be the best way to work on your credit history.
These three factors combined make up the bulk of what determines whether or not someone has a good enough credit history to get approved by a potential lender when they want to borrow some extra cash. Keep this in mind as you continue building good credit and see where it takes you!
Your credit score is an important tool. It is used by financial institutions or advisors to determine whether or not you are responsible enough to get approved for loans, credit cards, etc. The higher your score the more likely it is that lenders will be willing to work with you and give you their products!
We hope this guide will provide you with insight and guidance to achieve a great credit score that provides you with financial freedom.
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