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A good credit score plays an important role in the financial management of all individuals. It brings a lot of benefits and opportunities for borrowers because it shows lenders or credit card issuers your creditworthiness. The higher your credit scores, the higher the chance of getting a loan with good conditions. Borrowers with a poor credit history are more likely to be denied a loan.
Good credit scores may differ in three major credit bureaus (Experian, Equifax, and TransUnion). Usually, credit scores range from 300 to 850, and a good credit score is around 700 and above. It is calculated using information from your entire credit report.
Fico Score is a credit scoring model that indicates your creditworthiness. High FICO scores show that the borrower is less of a credit risk. Low FICO scores suggest that the borrower may have a higher risk of defaulting on their loan or credit card payments. If your FICO score is 670 or higher, it is considered good. A FICO score of 800 and above is considered excellent.
A good FICO score allows you to get a loan easily and on favorable terms. You should make all your timely payments to maintain good scores in this credit scoring system. Try to keep a low credit card balance, and avoid opening many new accounts at once. You should also make a credit report check regularly. There can be mistakes or inaccuracies that could lower your credit score ranges. Once a year, you can request a free copy of your credit report from each credit bureau.
Your credit scores start when you start using a credit card or get your first loan. A beginning credit score is always poor, but you can get a good credit range in a few months. You just need to repay debts on time. Credit scores may start from different numbers. It can be, for example, 300 (FICO score).
Choose a credit card suitable for your goals to start your credit score building. Always pay on time, and you will benefit from high credit.
Credit scores are one of the most important elements for lenders. A credit score shows whether it is safe for a creditor to lend money to you. Looking at your credit report, a creditor decides to approve or disapprove your loan request.
A good credit score can also help you to get an unsecured credit card with lower fees and better loan conditions. It is especially important if you are going to buy expensive items such as a car or a house. Good credit reports will help you achieve these and other financial goals easier.
You start building your credit history when you get your first credit card or traditional loan. From that moment, all your actions affect your credit report. So, you should make all your payments carefully. After you know what a good credit score is, you should learn the most critical factors that impact credit scores.
Repay loans on time. First, you borrow a small amount of money. If you pay it back on schedule, you will be able to borrow more next time. Such actions build your good credit score.
Pay your bills regularly. If you want to borrow money, creditors also take into account your payments for phone, utilities, etc. All your missed payments will be sent to the credit bureaus, decreasing your chance of getting a loan. So, you need to pay all your bills on time.
Do not close your credit accounts. Even if you have financial problems, try to keep yourcredit account open as long as possible. Its closing will cut the average age of credit and increase credit usage.
Review your credit reports. Nobody is protected from technical errors. Sometimes, errors may appear in your credit reports and negatively affect your payment history. There can also be unactual information. So remember to make a free credit score check once a year.
Keep your credit card balances well below your limit. You should have a credit utilization of up to 30% of your total credit limit. Low use improves your credit score and increases your chance of getting a loan at favorable conditions.
Try not to open new credit accounts. New accounts have a negative impact on your credit score and shorten your credit history. You should avoid opening them too frequently.
The average score in the USA varies depending on a certain credit score system. The average FICO score is 711, and the average VantageScore is 688. It can also vary by state because of the diversity of incomes and economic situations of certain regions.
To ensure that you are a lower-risk borrower, companies take into account your credit report. The reports do not include such information as:
- Your age;
- Your race, national origin, religion, sex, and marital status;
- Your address;
- Your salary, title, and employer.
There are a lot of various credit scoring models. Calculating credit scores in each of them may differ. You can see that even in the best-known companies, such as VantageScore and FICO, credit ratings are determined differently.
In general, the credit score range looks the following way.
- 300-579 – Bad credit score range;
- 580-669 – Fair credit score range;
- 670-739 – Good credit score range;
- 740-799 – Very good credit score range;
- 800-850 – Excellent credit score range.
Remember that each credit bureau has its own credit range. It impacts the understanding of what is a good credit score and a poor credit score. The main advantage of borrowers with excellent credit scores is that they can easily apply for a mortgage loan, car loan, or other forms of borrowing for a big sum. In addition, credit card companies offer forms of financial assistance to people with higher credit scores more willingly.
All credit scoring companies calculate credit scores differently. They regularly update their models depending on requirements and customer behavior. The most known companies are VantageScore and FICO.
For both companies, essential elements are your payment history and its length, limit usage, and the amounts you owe.
You can have FICO scores if your credit account has been opened within at least six months. In the case of VantageScore, your account should be open for at least one month.
In addition to this, the companies consider different factors for calculating credit scores. For example, VantageScore also pays attention to your recent credit behavior, while this factor does not play an essential role for FICO.
The time it takes to build a good credit score depends on your financial behavior. If, after getting your first credit card or a loan, you always pay on time, in 6 months, your credit report will look attractive to creditors. If you forget to pay, this period will be longer.
You can see your free credit score through three major bureaus: TransUnion, Equifax, and Experian. It will not affect your credit report. Each lender decides which bureau to check your report through. Sometimes, they may check through all three main bureaus. So, a borrower should keep track of each report.
Your credit score is affected by several elements:
- Payment history;
- Length of credit history;
- Credit Mix;
- Credit utilization;
- New credit;
- Outstanding debt.