Individuals who are in the market to buy a new home, car or any other type of major purchase need to know what their credit score is prior to applying for the financing. This is because credit scores play a key role in determining the type of loans and interest rates borrowers are eligible to receive. Those with good credit can usually lock in better rates and terms, however bad credit borrowers are often limited when it comes to obtaining competitive interest rates and loan terms. So the question is; what is a good credit score? In order to answer this question, its important to understand that there are three primary credit bureaus that provide individuals with credit scores. They include Experian, TransUnion, and Equifax. Of these, Equifax is the credit bureau which is considered to be the most used and trusted due to its initial presence in the market. Individuals are not randomly scored with good or bad credit. In fact, credit scores are specifically based on several different factors, including the following:1. Type of creditAlthough having a good mix of credit types is considered to be great, too many open accounts is usually frowned upon by lenders.2. Length of time individuals have had creditThe specific amount of time individuals have been using credit also plays a role in determining credit scores.3. New creditWhen it comes to applying for additional credit, an individuals score usually drops when too many credit inquiries are made over a short period of time. 4. Payment historyA significant percentage of a persons credit score is based upon their payment history. While a few late payments are generally okay, more one too many late payments can get borrowers in trouble.5. Outstanding balancesWhen individuals reach, or are close to reaching their credit limits, their score tends to take an automatic dive. This is why its important for borrowers to pay their credit cards down immediately when approaching the credit limit. Most creditors use the Fair Isaac credit-scoring model, commonly known as FICO to evaluate credit scores for individuals. The following is a breakdown of their scoring methods, which can also help borrowers answer the question, what is a good credit score?
700 and higher: Excellent credit 680-699: Good credit 620-679: Satisfactory credit 580-619: Not exactly bad credit, but extremely close 500-580: Very low credit, expect to pay significantly higher interest rates for loans 400 and below: Bad credit
For individuals who fall in the lower category of the FICO credit-scoring model, all hope is not lost, as there are several ways to improve bad credit. In addition to making minimum monthly payments on time, credit card holders should contact their creditors immediately if payments are missed unintentionally. Its also wise for individuals to avoid opening and applying for new accounts, especially if they are not considered necessary. Furthermore, its always a good idea for individuals to use credit sensibly, which means abstaining from frivolous or unnecessary purchases on their credit cards. Individuals should make it a habit to check their credit card statements carefully every month for any discrepancies, and pay outstanding balances in full whenever possible. Finally, borrowers should take advantage of the free credit report policy which the U.S. legislation has mandated once a year, and review their status for accuracy.There are also many types of credit services that can help individuals receive debt relief, and improve their credit score. For example, those with bad credit can often turn to different credit counseling agencies, who offer assistance with a range of credit services, including debt management plans. These plans usually allow credit counselors to consolidate a debtors loans, which in turn enables them to make one monthly payment to the credit counseling company, versus multiple payments to several lenders. Because this makes it easier for debtors to manage their finances, they can continue making payments on time and slowly begin to rebuild their credit.