A good credit score can save you tens of thousands of dollars over your lifetime. I don’t know about you, but that’s the kind of thing that’s worth my time and effort to make sure I get right. Unfortunately most people don’t know much about credit scores. Frankly, I don’t blame them. No class in my school system even uttered the phrase “credit score.” I’m too Lazy to conduct an informal man on the street survey, but I’m guessing that people don’t know their FICO from their FDIC. Today, I thought I’d go into a details on what a good credit score entails. There is more to it than you might think.
In case you are one of those people who don’t know what FICO is, let’s start there. The Fair Isaac COrporation (FICO, get it?) created a formula for consumer credit more than fifty years ago. The three major credit reporting agencies use this model in defining the number universally known as the “FICO score.” Equifax, Experian, and TransUnion all use FICO software, but calculate their own credit score numbers. Each considers factors such as payment history, types of debt, as well as the level of current debt when creating a score. If you have pulled your credit report, you may have noticed that the numbers vary between agencies. They differ because these bureaus weigh these factors according to their own criteria. What are the formulas? It’s a well-guarded secret leading to little credit score transparency.
What, then, is a good credit score? Fortunately, lenders are in consensus as to how they view that number on the page. However, while any score above 700 should be considered good, it is not necessarily the excellent score that many assume. The top tier of FICO scores ranges from 760-849. Lenders view a score in this range as outstanding; the borrower should qualify for the best possible loan terms and interest rates.
Below this tier lies the 700-759 range; if your score is in this range, fear not! You should still qualify for excellent credit terms from most lenders.
Scores within the 659 to 580 range, as one might expect, remain less attractive to lenders. Keep in mind that it is quite possible to still get a loan if your credit score is in this range, but the terms will not be good.
A poor score falls within 580-619, the lowest tier. In this economy, the borrower may find some lenders unwilling to lend at all. All three major reporting agencies view a score below 579 as extremely poor – so you definitely want to stay out of that range.
Different lenders also have different criteria. These criteria remain subject to larger economic trends. For example, during the housing boom, banks lent money to borrowers with a 680 score in the belief that housing equity would remain high. Now mortgage brokers save their preferred rates and terms to those with a higher score, such as a 720 or better. This relative nature of credit scores makes it difficult to pin down exactly what a good credit score is.
Understanding what constitutes a good credit score has become a fundamental cornerstone in making wise decision when it comes to spending and saving. If you are looking to improve your credit score, I recommend you learn how to fix your credit at my other site, How To Fix.
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