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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 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.
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 is 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
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.
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 your work to have the best credit score that you can.
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