What is Considered as a Good Credit Score?

There is so much emphasis on your credit score lately that it’s time we looked into what it all means.

Your credit score is a number created by the three major Credit Reporting Bureaus. They create your personal credit score using a calculation derived from all the reports they’ve received about your personal credit patterns and behaviors.

Think about your current debts. You might have credit cards, personal loans, student loans, a mortgage, store cards, and others. When you make each payment on these loans, it’s reported to the Credit Reporting Bureaus.

In America the average credit score is 692. Banks consider customers with an average score to be generally acceptable although with room for improvement.

Banks consider any credit score over 700 to be very good credit and anything over 750 to be exceptional. With scores this high, you’re likely to receive interest rate discounts and even have some of your fees waived.

On the reverse of this, if your credit score falls below 675 you’ll be considered a sub-prime borrower. You may receive higher than normal interest rates to offset the bank’s lending risk, which costs you more money each month.

If it drops even lower to below 600, you may only be able to borrow funds with difficulty.

Considering the average credit score is 692, this many Americans are very close to becoming sub-prime lending customers. Juggling so many credit cards and loan repayments can be a prime reason for average credit scores dropping so low.

Before you consider ways to increase your credit score, you’ll need to know a little about what factors contribute to either increasing or decreasing your score.
Let’s look at how your credit score is calculated.

35% is from credit history
If you pay your bills and repayments on time, then you’ll get maximum score on this one. If you often slip behind with payments then this part of your score will drop quickly

30% is from account balances
If you have 2 credit cards and you pay them both off each month to a zero balance then you’ll score highly in this section. But if you have several credit cards all maxed out then your score will suffer.

15% is from length of time with credit
If you have a mortgage and you’ve been paying it off on time for years and years then this goes in your favor. It proves to the banks that you have the discipline required to handle large amounts of credit.
If you have several credit cards under a year old and they’re all maxed out this tells the banks that you aren’t handling your credit responsibilities well.

10% is for type of credit
Banks may consider a regular family with a mortgage, a car loan, and a credit card to have a good mix of credit for daily living and may give them a good rating in this category.
However if you have several credit cards, some store cards, a student loan and personal loans then the bank may consider you’re living beyond your means with not much to show for it.

10% is from credit inquiries made
The banks are able to see what types of loans you’ve applied for up to 5 years ago. If you have a rush of applications in the past 6 months for credit cards or personal loans then the bank might consider that you’re either on a credit binge or that you’re having financial difficulties in other areas.

What is a good credit Score?
Understand your credit score and what your number means