What is a Good Credit Score?
A credit score is a way for lenders to measure the credit risk of an applicant applying for a loan. It uses a statistical model to measure someone’s credit worthiness based upon their credit history and current open credit accounts. The measurements are based upon comparisons of a sample of other similar consumers.
Scores are determined by reviewing the following data types:
- Bill payment history
- Missed payments
- Level of current debt
- Types and amount of credit accounts
- Length of credit history
- Number of recent credit enquiries
- Total applications for credit
- Bad credit behavior
With these factors credit scores are reported as a number in the range of 300 to 900. The higher the number, the better the credit score. Each of the 3 major credit bureaus has its own method for calculating your credit score, but all models have been standardized. A score of 600 in one model should be roughly the same in another model.
A score of 650 or higher is a sign of a very good credit score. Individuals with a score of 650 or higher should not have a problem obtaining loans at great interest rates. Scores between 620 and 650 indicate good credit, but a person may need more documentation to get approval. Scores below 620 can still get approval for loans, but the process can take much longer as creditors consider individuals with this score a credit risk.
Therefore, it is very important to maintain a good credit rating if you wish to make a major purchase such as a car or home in the future. A small mistake like paying your bills late can cost you in the long term. It can cost you time and money to get the item that you want. The higher your credit score is, the easier things will be in the future.
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