What Is A Good Credit Score?

Did you know that your credit score is more than a number? It reflects your financial health and can impact your ability to get approved for credit cards, loans, and rentals. Whether you’re taking out a new loan or have had credit cards for years, it’s important to understand how your credit score is calculated and why you need to maintain a good score. This post will discuss how a good credit score can help you qualify for better financial opportunities and save money.

What is a credit score?

A credit score is a three-digit number that tells a person’s creditworthiness. It is based on calculated information that is found in their credit report. Different scoring models exist, but FICO is the most widely used one. It is calculated using the following factors. 

Payment History

Your payment history looks at whether you made payments on time in the past, including late or missed payments. It checks to see how many accounts have been paid on time and how many are delinquent. It accounts for 35% of your credit score.

Credit Utilization

Credit Utilization looks at how much of your available credit you are using. It considers the balance on your credit accounts compared to the credit limits on those accounts. It is 30% of your credit score. 

Length of Credit History

The length of credit history looks at how long you have been using credit. It includes the age of your oldest and newest accounts and the average age of all your funds. It is 15% of your credit score. 

Credit Mix 

Your credit mix reviews your different types of credit accounts, such as auto loans, mortgages, credit cards, and other loans. It accounts for 10% of your credit score.

New Credit

New Credit looks at how often you are applying for new credit. It includes the number of credit inquiries and new accounts opened recently. It is 10% of your credit score. 

What is a Good Credit Score?

Credit scoring models use the factors discussed earlier to generate your credit score. The scores typically range from 200 – 850. A score between 700 and 749 is considered ‘Good’ while a score above 750 is regarded as ‘Excellent.’ The average credit score falls between 600 and 750. A high credit score shows better credit decisions. It builds confidence among creditors that you can repay your debts as agreed.

Lenders such as credit card companies, banks, and mortgage loan providers use credit scores to determine whether they should offer you credit. They also use credit scores to assess the terms of the offer in terms of down payment and interest rates.

The Importance of a Good Credit Score

A good credit score can help make your life much more accessible than a terrible score. Have a look at some benefits of having a good credit score number.

Easier to Get a Loan

With a bad credit score, you will most likely avoid making new loan or credit card applications since you fear your offer will be turned down. Having a good credit score only sometimes guarantees approval for a loan or credit card, as lenders will always have a look at other factors. However, it offers you a great chance of being approved. When you have good credit and decide to apply for a loan or credit card, you can do it with a lot of confidence.

Better Interest Rates

If you are approved for the loan, you will receive better interest rates if you have a good credit score. For example, if you have a good or excellent credit score, you can get a mortgage rate with a 3.5% interest rate. If your score is poor, your interest rate could be 7%. That’s a big difference. 

It Can Come in Handy When Getting an Apartment

In recent times, landlords have been using credit scores to screen their tenants. Therefore, a bad credit score, especially when caused by an outstanding rental balance or eviction, can reduce your chance of renting an apartment. On the other hand, with a good credit score, you can save yourself the hassle and time of finding a landlord who will ignore your damaged credit.

It is Easier to Get or Keep a Job

A lot of employers usually conduct credit background checks as a way of determining whether they should hire you or not. If you have yet to show financial responsibility, an employer might hesitate to hire you. For instance, they might believe that your debt level is too high for the salary they offer. Employers will also look at your credit score before offering you a promotion or pay rise. This mostly happens for executive and financial-related positions.

Better Negotiating Power

A good credit score allows you to negotiate a lower interest rate on your loan or credit card. If you need more bargaining power, then you can refer to the fantastic offers you received from other companies regarding your credit score. Nevertheless, creditors will only be interested in discussing loan interest rates if you have a high credit score.

How to Maintain a Good Credit Score

As seen, there are a lot of benefits to be accrued with maintaining a good credit score. Here are some tips regarding how to maintain a good score.

Know What a Good Credit Score Entails

The first step to maintaining a good credit score is to know what it entails. The more knowledge you have, the easier it will be for you to keep. Factors such as your level of debt, recent credit, payment history, credit age, and mix of credit play a critical role in your overall credit score. Therefore, you have to consider these factors when planning to boost your credit score number.

Pay Your Bills On Time

This tip applies to all your bills, not just loans and credit cards. While some bills are not reported to credit bureaus after paying, they could be reported if you don’t pay. This applies even for a small library fee. Due to this, you should pay all your bills on time to have a good credit score.

Keep Your Old Credit Cards to Maintain a Long History

There are several reasons why you should keep your old credit cards. Doing this can benefit you as the length of your credit history accounts for 10% of your overall credit score. This is critical for older cards since they provide a longer record, which is good when working on your credit score.

Check Your Credit Report For Errors

Having errors on your credit report is common. Due to this, you need to keep an eye on your credit reports and fix those minor issues. Doing this might help you maintain a good credit score. It might be worth it to check out sites like Creditrepair.com which can help you improve your credit score.

Keep Your Credit Utilization Low

The higher the balance on your credit card, the worse your score is likely to be. Your balance should be around 30% of your credit limit to maintain a good credit score. Charging over 30% of your limit is risky, even when you have plans to pay what you owe the issuer after getting your billing statement. Your card issuer typically reports the balance immediately after your statement closes. Therefore, if your balance is high, there will be an effect on your credit score even when you pay your balance in full.

A good credit score has numerous benefits, such as enjoying lower interest rates on your loans and credit cards. A good credit score can also help you save a lot of cash on security deposits and insurance. With our tips on maintaining a good credit score, you should be well-placed to achieve the many advantages associated with a good credit score number.