It seems that one of the most frequently asked questions consumers have is “what is a good credit score?”
And it is a GREAT question.
As you start out on the path of improving your credit score, it is important to clearly define your goals and set an exact target for your credit scores.
This is why it is paramount to specify exactly what good credit is.
Although it can be a bit tricky defining the exact range for a good credit score.
According to the Fair Isaac Company, the developers of the FICO scoring model, here are the general ranges for credit scores.
Credit Scoring Range
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 599
What’s Your Credit Score?
Now that you can define what a good credit score is, it’s a good idea to find out where you stand.
Credit monitoring companies charge anywhere from $10 to $30 per month to give you access to your credit scores.
But, you can actually get your credit scores from all 3 credit reporting agencies for free (no credit card required).
Once you take a look at your credit scores, you’ll have an idea of how lenders view you and your creditworthiness.
But, how did the credit bureaus come up with these scores?
How Are Credit Scores Calculated?
Credit scores are calculated by applying a mathematical formula to the information contained in your credit report.
So if you’re wondering why your scores may be a bit low, the answer will be in your credit report.
The FICO scoring model uses several key factors to determine your credit scores.
And although the actual formula has not been publicly disclosed, we know the general guidelines used to calculate the FICO credit score.
- Payment History
- Amounts Owed
- Length of Credit History
- Credit Variation
- New Credit/ Inquiries
Basically, the information in your credit report is run through an algorithm that scores your creditworthiness on the aforementioned factors and spits out a number that helps lenders gauge the risk of lending you money.
The higher the credit score, the lower the risk, and the better the terms of the loan.
The Benefits of Good Credit
Good credit will help give you access to hundreds of thousands if not millions of dollars in credit at the best possible rates and terms.
Whether it’s buying a house, financing a car, getting a business loan, or even a credit card for your day-to-day expenses; good credit will open the doors to a better life.