What is a good credit score? Where does my score currently stand? How is it affecting my life?
If you’re asking yourself these questions, you’re not alone. In fact, a recent study showed that sixty percent of American adults had not reviewed their credit score at any point in the previous year.
But it’s never a good idea to be in the dark about your credit standing. A stellar credit score is necessary for securing any type of loan throughout your life (and can affect other areas of your life that may surprise you).
If you want to learn the answer to the question “what is a good credit score?” and lots more, keep reading. We’ve got the full guide right here.
Let’s get started!
Why Credit Scores Exist
The existence of credit scores can feel frustrating and, at times, seem arbitrary. Let’s explore why they exist and how they are useful in our society.
In short, credit scores exist so that money lenders can gather whether or not a person can be trusted to repay a loan. This lender could be a bank or business, but whoever it is, no one wants to hand out a cash loan without some good merit to back it up.
After all, you wouldn’t loan a stranger funds without knowing anything about their past payment history, would you? Of course not.
By looking at a number that represents this very history, and therefore its owner’s ability to pay off monetary loans, institutions can determine whether or not a person is worthy as a borrower. So, although the existence of credit scores may often feel unfair, they are necessary in order for any type of credit to be given out.
How to Check Your Credit Score
Do you know the current standing of your credit score? If not, you should. By regularly monitoring your score, and considering what is a good credit score, you can ensure that you are in the best standing possible for your situation.
So, how can you check it? Thankfully, there are a few different ways in which you can learn your score for free or close to free.
Certain credit card companies will supply a free score to their customers. Also, there are various resources which allow you to check your score free of charge, just keep in mind that these free scores may not be as accurate as the scores lenders or credit card companies will have. Just be aware that these websites make money by offering you advertised services based on your score (which can actually be quite useful). Thirdly, you can access your credit scores for $1 as a new member under a 14-day trial at PrivacyGuard.com. Be sure to save a copy of all three credit bureau reports as a pdf and cancel their trial as soon as possible, as they will charge you $19.99/month for their credit monitoring services. Lastly, if you prefer to have a credit report with the most accurate scores that a lender will have, then myFICO.com would be the best place to go.
AnnualCreditReport.com does not supply you with credit scores, however, if you are curious to see what discrepancies may reflect on your credit profile they offer reports for free once a year.
Why Credit Scores Can Differ
Did you know that you actually have three different major credit scores? This is because there are three major credit bureaus.
What Is a Credit Bureau?
Credit bureaus are for-profit companies that gather and store data regarding consumers’ financial information. They take all of this data and create reports which they then sell to creditors or other interested parties.
Long ago, many credit bureaus would compete to sell this information. Now, the market is virtually completely dominated by the “big three”. These companies are Equifax, TransUnion, and Experian.
Why They May Provide Different Scores
So, why are the big three giving you three different credit scores? There are a few different factors which may be at play.
Firstly, the scores provided may simply be from different dates. Your score can change quickly as time goes by, so a discrepancy in which dates they were collected can explain a reported score difference.
Secondly, credit bureaus may use different formulas in order to calculate your score. There’s nothing wrong with this (although the variation in your score shouldn’t be too big of a difference).
And thirdly, the numerical differences in your reports may be a sign that not all of your lenders are reporting to all three of these bureaus. Some may only choose to report to just a couple, which could explain the discrepancy.
When to Be Concerned
If you’re looking at a difference of a couple of points, fear not. But if you’re seeing something more than a twenty point discrepancy, investigate it.
Breaking It Down: What Is a Good Credit Score?
So, now that you know what your credit score is, what does it mean? And what is a good credit score, exactly? Let’s break it down numerically.
300 is the worst credit score you can have. From there up to 550 is considered to be a poor score. If your score is in this range, it’s highly unlikely that you would be approved for a loan.
This type of score is most likely resulting from late payments, poor budgeting skills, and more.
This range is considered “subprime”. It’s in between poor and adequate. There are very few companies out there that can and will approve you for a loan, and chances are it will be at a very high-interest rate.
A score of between 620 and 680 is adequate. While you may be approved for loans, it will probably be at a higher interest rate than the following score brackets.
If you’re in this range, you’ve got good credit! You should be able to score a pretty nifty interest rate on most loans.
A credit score between 740 and 850 is as good as it gets. This range and the one before is the simplest answer to the question- what is a good credit score?
Why These Numbers?
Keep in mind that the ranges and explanations provided above are examples of how you can mentally break down credit scores into manageable groups. Not every person or business will group them in exactly this way.
So although this breakdown generally answers the question “what is a good credit score?” just be wary that different businesses may have different answers.
What You Need a Good Credit Score For
In addition to asking yourself, “what is a good credit score, anyway?” you may also be asking yourself, “what do I need a good credit score for?” Well, having good credit matters in many areas of your life, plain and simple. Let’s break it down.
You Need a Good Credit Score to Live Where You Want
Not only do you need a good credit score to be approved for a mortgage on a house, you also need a good one to be able to rent! After all, landlords and building managers look at a lease just like a loan. So if you have a bad credit score, your application won’t be approved.
A Good Score Will Get You a Sweet Ride
Without a stellar score, good luck securing a car loan. If you want to purchase your dream car, you’ll need the dream score to match. Otherwise, you’re looking at overpaying on an older version of your dream car at such a high interest rate as well as possibly being required to put down more money upfront.
Better Score, Better Job
When an employer considers hiring you for a job, they may implement a credit check. Financial responsibility is a great characteristic, and the opposite may indicate that you will not be a responsible employee.
Did you know that in order to register for various utility services, a good credit score is needed? For example, each month when you pay for your electricity, you are, in essence, paying for a borrowed (or loaned) service. So the electricity company needs assurance that this loan will be repaid before offering you any services. This applies to phone services, too!
How to Improve Your Credit Score
Now that you know what is a good credit score, let’s talk about how to get there. If your score isn’t exactly where you’d like it to be, fear not! There are simple ways to conquer your credit and take control of your life.
Don’t Have Your Credit Pulled
Having your credit pulled multiple times affects your scores significantly. These inquiries will damage your score for up to 2 years, so avoid having it pulled by anyone, unless absolutely necessary.
Pay on Time, Every Time
If you want a credit score that melts your worries, make sure that you are paying each and every one of your bills on time. Even payments that are less than a week late can have a negative effect on your score.
Credit cards maxed out? This could hurt your score. Keep your credit card balances low to achieve and maintain a good credit standing.
Open or Close?
If you’re wondering whether to close credit accounts or keep them open, be aware that closing accounts can hurt your score. This is because the length of your credit history is taken into account when your score is created.
In the same vein, opening new accounts can also hurt your score. Lenders may request a credit inquiry, and a new account will also shorten the length of your credit history.
Stay on Top of Your Score
Make sure that you stay aware of your credit standing. In whichever way works for you, monitor your score for any changes so that you can keep an eye on your progress and check up for inaccurate changes.
As you can see, the answer to the question, “what is a good credit score?” involves the consideration of many factors and variables. And once you have a handle on which factors are affecting your unique score the most, you can finally take control of your credit.
Just remember to consistently check your score for inaccuracies, to take the appropriate measures to improve your score, and to strive for a score of 680 or more.
Feeling overwhelmed, or need some help along the way? We’re here for you. Contact us with any questions regarding the health of your credit score and we’ll point you in the right direction.