People often want to know what is a good credit score and if they don’t have it then how to get good credit. You have to understand there’s an established scale where the ranges represent the type of credit you may or may not qualify for. The scale is based on FICO scoring and calculated according on how well you manage debts in your personal life.
During the 1980’s the 3 major credit bureaus Experian, Trans Union and Equifax offered creditors a system of credit scoring that banks and lending institutions could use to help rate the credit worthiness of loan applicants and those looking to get credit cards. First developed in the 1950s, this scoring-based system became the model that is now wide used by most major banks, credit unions and credit card companies all across the United States. The data that is on file in your personal credit report now determines if you qualify for a mortgage loan, refinancing options and even other types of lending products. All loan decisions are empirically based on this data and in more recent times, potential employers and now using this same data to screen candidates in certain financial careers. It is always a good thing to have the highest score possible. Good credit scores have an impact in more ways than previously imagined.
So what exactly what’s a good credit score range based on FICO in the year 2010 and 2011? First let’s note that the scale begins at the lowest end of the spectrum starting at 300 and increases upwards to 850 which is the best credit score a persona can posses. The average person’s credit score falls between the ranges of 600 – 700 which will still qualify you for loans at the discretion of the bank and for credit cards for good credit applicants. A 680 credit score will pretty much open the door for just about any loan you may need depending on your gross monthly income. Consumers really need a 700 to 720 score to get the best deals on loans.
The credit scoring system is based on a mathematical formula which is influenced by several factors. These factors include a history of late and non payments, maturity of credit history, how much debt you currently owe, numbers of recent credit inquiries, types of credit accounts and lastly, any established history of bad credit behavior. The 3 main credit bureaus never used race, creed or religion as a basis for credit worthiness, but instead have used the aforementioned criteria to solely create and rate your credit history. This measurement of assessing one’s credit standing reduces the risks for banks by helping to ensure that loans will be paid back.
So what is a good credit score for the average loan applicant?
While some banks use a standardized scale to measure and calculate scores, some banks may have their own standards. Below you will find the industry averages and how each credit scores range affect your ability to get credit:
751 and higher – is considered an outstanding credit range and will qualify you for the best loan with the lowest interest rates.
711-750 – This is looked upon as excellent credit. Here, you will be able to get comparably competitive interest rates on credit.
651-710 – Regarded as the good credit score range. Banks will issue you moderate interest rates but the loan amount may be questionable if it is a big loan.
581-650 – Regarded as marginal, you are like to qualify for a loan but at higher interest rates since banks see this range as somewhat risky.
300-580 – Viewed as poor or low credit scores and most likely you will not get a loan but will be denied by banks and credit card companies. Loans approved at this credit range usually carry extremely high interest rates and are very hard to pay off when approved.
One can understand that from the good credit score ranges above, most banks regard an average rating of 651 or higher as a sign of very good credit and are likely to grant loans if all else is equal. You will have to demonstrate by documentation that you have the income means to repay the loan and the amount you will receive will be based on your gross earnings compared to a 50% debt ratio.
How to Build Good Credit
If your currently rating is within the 300-580 range, then there are steps you can take to raise your credit. This is especially true if you are shopping for a new hoe or car and you are in the market prospecting for lenders. Just look around this website and you will find excellent resources to help you transform you poor credit problems into good qualifying status. As a rule of thumb, if your present level of household debt is higher than 50% of the maximum that you are permitted on credit, then you will end up with a lower score. Work to keep that percentage lower through diligently monitoring all of your household debts so the next time you will not be asking what’s a good credit score, but rather how can you get an excellent rating instead.