What Is A Good Credit Score?

What Is A Good Credit Score? [Is Yours Good or Poor in 2022?]

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What Is A Good Credit Score?

Credit is extremely important in our day-to-day lives. We need good credit to get the car and home loans we apply for.

When you find an apartment you’d like to rent, more often than not the landlord will run a credit check to determine whether or not you’ll get the rental.

Many great jobs in the government and private sector also check people’s credit scores when they are applying for a position as well.

However, most people don’t understand their credit score, or even know how to check it.

Let’s take a look at consumer credit, so you know what a good credit score is.

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What Is Considered A Good Credit Score?

What is Your Credit Score?

The most common credit-scoring method today is called the FICO Credit Score, created by the Fair Isaac Corporation. The FICO score is a number comprised of three digits. It is used to rate the likelihood that a consumer will be able to pay back debt and other bills reliably.

Three major credit reporting bureaus track individuals’ financial data and compile credit scores: Equifax, Experian, and TransUnion. Banks, credit card companies, utilities, and other businesses send individuals’ financial transaction data to these bureaus, and they use it to calculate people’s credit score. 

While each of these bureaus may vary slightly in their methods and the financial information they receive, they generally compute credit scores in the same manner. These credit reporting consider the following five factors when calculating a credit score:

  • Payment History. Payment history is how well and timely you pay your bills. This is the most important credit score factor and accounts for roughly 35 percent of your overall credit score. 
  • Credit Utilization. Credit utilization assesses how much of your overall credit you are using. It accounts for approximately 30 percent of your overall credit score. 
  • Credit History. This factor examines how old each of your credit accounts is, and accounts for about 15 percent of your overall credit score. 
  • Credit Mix. Credit mix looks at the different types of credit you’re carrying, such as mortgages, car loans, and credit cards, with the more diverse the credit the better. This factor accounts for about 10 percent of your credit score. 
  • New Credit. This factor examines how many recent credit inquiries you’ve made, or how many new credit accounts you have recently opened. It accounts for 10 percent of your overall credit score.  

Lenders, financial institutions, and other businesses frequently send the three bureaus information on the various financial transactions they have with you. If you apply for a new credit card or car loan, that inquiry will get reported to the bureaus. Similarly, if you pay off a loan, or are late in making your car or mortgage payment, that will likely get reported, too. Once the bureaus get these new data points, they input them into your record, and your credit score is adjusted accordingly.

RELATED: Use Credit Builder Loans To Improve Your Credit Score.

Credit Score Ranges

So, what is the difference between a good credit score and a bad one? FICO credit scores range between 300 and 850. 670 or above is considered a good score, while anything over 800 is considered excellent. About 45 percent of consumers have a credit score between 670 and 799, which is in the good to very good range.  People with these types of credit scores will generally be able to gain approval and competitive interest rates on various types of credit, such as car loans or mortgages. 

Credit limits that fall within this range will almost certainly enable you to be considered for loans or other sources of financing more favorably because they’ve demonstrated responsible behavior in the past which gives them confidence when it comes time to evaluate candidates!

Conversely, about 17 percent of consumers have a credit score in the 580 to 669 range, which is considered fair. Lenders consider people with fair credit to be subprime as far as loans are concerned; while they may be able to qualify for a loan, it may be a modest one, and carry a higher interest rate. Finally, 16 percent of Americans have a credit rating of 300 to 579, which is considered very poor. People with very poor credit will often be required to provide deposits for rentals and will have difficulty being approved for credit cards or other types of loans.

A lot can happen in the time it takes to rebuild your credit. It might take years, but with hard work and dedication, there is no reason why you shouldn’t be able to get that perfect score!

The Benefits of Having a Good Credit Score

A good credit score is important to most Americans, especially those who need access to lenders and loans. A person’s credit can determine what they are able to do with their money, including buying a house or car and even starting a business. It also plays a key role in how much people will pay in interest when they borrow money. 

A good credit score can help make it easier to get loans at lower rates and you may be considered for jobs that require better scores than others. People with bad credit may end up paying more for things like mortgages because lenders see them as riskier borrowers compared to those with good scores who have shown themselves capable of managing their finances responsibly over time. 

A strong financial history, which includes checking your report every year, can help ensure the best possible financial outcomes for yourself.

RELATED: Learn How To Get Free Makeup.

How do you check your Credit Score? 

Fortunately, it is easier than ever before to monitor your credit. Most banks and financial apps now offer free credit score tracking, so you can view your credit score in real-time. Additionally, you can order a free credit report once per year from each of the credit reporting agencies, too. Just download your free report, and you can review what each of the credit bureaus are tracking. If you stagger the times you download each of the three credit reports over several months, you can keep a good snapshot of your current credit status throughout the entire year.

In order to get your credit score from one of the three major bureaus (Equifax, Experian, and TransUnion), all it takes is agreeing to provide them with some basic information like name, address, and phone number; employment history including employer name and contact information; date of birth; Social Security.

How do you Improve your Credit Score?

There are many ways you can improve your credit scores by following these simple steps. Here are some things you can do to start improving your credit rating right away. 

Open Bank Accounts that Report to the Credit Agencies

Opening accounts that report to the bureaus and making sure they remain open with reasonable balances in good standing will help establish an excellent track record for lenders who may want future business from you.

Opening new accounts that are reported to the major credit bureaus can have a positive impact on your future financial well-being. Overall, making new accounts that will be reported to the major bureaus—most lenders and card issuers report to all three agencies—is a great place to start.

Paying Bills on Time

You might be surprised to learn that there are many different ways you could increase your credit score. In addition to having accounts that actually send reports to credit agencies, you can boost your credit by getting extra points for paying bills like cell phones, utilities, and streaming services. It’s important to keep your bills paid on time since payment history is such a critical component of your credit score. When you’re consistently in good standing with your bill payments, it will help your credit score improve over time. 

Apply for a Credit Builder Loan

A credit-builder loan can help you build your credit history without requiring a large upfront deposit or any collateral. You make regular payments on the loan, and those payments are reported to the three major credit bureaus. That helps establish your good payment history, which helps to improve your credit. When you’ve made all the required payments on time, the loan amount is returned to you with no prepayment penalties or fees! 

Apply for a Secured Credit Card

Building a credit score is not an easy task. Individuals need to maintain a good credit history and pay their bills on time, which requires discipline and strong organizational skills. A secured credit card can be used as a tool for building your credit score because it will require you to make timely payments in order to use the card. In turn, this will also encourage lenders to extend more flexible lines of credit later down the road. It may take some patience, but with hard work (and abiding by the rules) using a secured credit card should help you build up your credit score over time. 

Become an Authorized User on Someone Else’s Credit Card Account 

Getting added as an authorized user on someone else’s credit card can also help, assuming they use the card responsibly. Authorized users get access to their friend or family member’s account and make purchases in order to build up rewards for themselves without going through any fees associated with using a personal bank account.

Pay Down Revolving Account Balances 

The concept of paying down revolving account balances can seem like a daunting task. But, if you take the time to break it into manageable pieces and work on it consistently, then you’ll find that your credit score will improve while you’re at it.

Paying down revolving account balances is an important step in improving your credit score. If you have high-interest rates on any of your accounts, then consider switching them over to low-interest balance transfer offers from other banks. However, be sure not to close out these accounts because this can negatively affect your credit score as well. In order for this process to be successful long-term, make sure that all of your payments are being made on time each month. 

Create a More Diverse Mix of Credit

It is important to have a diverse mix of credit in order to build your score. You can do this by applying for new credit cards, opening up a savings account, or getting approved for an installment loan. The more you spread out your age and types of accounts, the better chance you’ll have at building your credit score. 

For example, if you apply for five different credit cards within six months, it will lower your average age of accounts because all five are considered new accounts (according to Experian). So, while that might help increase the likelihood of approval on one card, it could hurt other applications because they will be seen as too recent since they’re all less than six months old.

Pay Down Your Credit Card Balances

Credit cards are easy to find and can be used almost anywhere, but it is important to pay off the balance every month in order to avoid debt. If you use your credit card for most purchases, make sure that you always have enough money in your bank account so that the payment is covered. If you cannot pay the entire balance off each month, make a plan to slowly pay down the balance over time. 

Get Help

If you’re having trouble managing your debts and it is affecting your financial well-being, don’t go it alone. Find a trusted financial advisor or credit counselor to assist you with dealing with all your debts. If you get help developing a financial plan of action and have some assistance to help you follow through with it, you can improve your credit rating and get on the path to having solid finances forever. 

RELATED: Check out the MoneyLion app if you need credit

Parting Thoughts: Credit Scores

A good credit score can open many doors for you in life. Your FICO score can give you greater access to the credit you need to buy your first home, a new car, or start a business. It can also impact your ability to rent an apartment or land your dream job. So, take the information provided here into account, and make sure you work to have the best credit score that you can. 

Check Your Credit Score For Free

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