What is a Good Credit Score?
Imagine you are all set to purchase your dream home and fall short of money. You go to the bank to get a loan, but your application gets rejected because you don’t have a good credit score. Seems frustrating? It indeed is.
Maintaining a good credit score is essential to acquire financial assistance when you need it the most. Although different lenders have varying criteria for evaluating creditworthiness, a good or excellent credit score can make the loan approval process smoother and help you get better interest rates.
If you struggle to understand what defines a good credit score and how to achieve it, this guide is for you! Continue reading.
What is a Good Credit Score?
Typically, a credit score of 650 to 739 is considered good, and anything above this falls into an excellent category. However, there are two credit scoring companies, Fico and Vantage, whose definition of good credit score varies slightly. Here’s an overview:
- FICO: FICO, or Fair Isaac Corp, has a good credit score range of 670 to 739. The company collects data from three bureaus, TransUnion, Equifax, and Experian, to assign credit scores.
- VantageScore: On the other hand, VantageScore’s good credit score is anywhere between 661 to 780.
- Poor: The FICO poor score ranges from 300 to 579, while for VantageScore, it’s 500 to 600.
- Fair: 580 to 669 comes in the fair credit score bracket per FICO. VantageScore considers a credit score of 601 to 660 in the fair category.
- Good: For FICO, it’s 670 to 739 and 661 to 780 for VantageScore.
- Excellent: As per FICO, if you have a credit score of 800 to 850, you are in the excellent category. On the other hand, VantageScore considers 781 to 850 an excellent score.
Why is a Good Credit Score Important?
Do you know the efforts to increase their credit score have increased in all generations in the US, whether it’s Gen Z or millennials? Even the Experian report shows that nearly a quarter (22%) of Americans have a FICO Credit Score of 800 or higher. So, if you are wondering why to maintain a good credit score and what it can get you, here are some compelling reasons:
Easy Renting an Apartment
One of the major benefits of a good or excellent credit score is that it makes it easy for you to rent an apartment. How? Well, a landlord may see your credit score before signing a deal with you.
If you have a good credit score, it shows them that you are habitual in paying your bills on time and your financial standing is strong. This can make your application stand out among other rental applications, increasing your chances of getting the desired space.
Know that although 620 is the minimum score you need to qualify for an apartment, some landlords are strict and demand more. Therefore, you should adhere to the best credit score practices and simplify the application and renting process.
Get Good Car and Home Insurance Rates
You may not know this, but your good credit score can lower your car or home insurance premiums. Yes, it’s true!
Many insurance companies evaluate your credit score to assess overall risk as a policyholder. If your credit score is good, you can qualify for discounts on your coverage, which can significantly reduce your monthly or annual premiums.
Nonetheless, there are states where insurers are not allowed to weigh in credit scores when setting insurance interest rates.
For instance, in Maryland, credit-based home insurance scoring is not allowed, while in California, credit-based insurance scoring is entirely banned. Therefore, it’s essential to consult the laws and regulations of your area before coming up with a credit score.
Cheaper Loans and Higher Amounts
Are you eyeing your dream car for a long time but still haven’t saved enough to get it finally? Or is your dream of having your own home a hundred thousand dollars away? Doesn’t matter the case; a good credit score can help you get huge amounts of money at an incredibly low interest rate.
Interest rate is the amount that you pay to borrow money. In the US, the average overall interest rate for personal loans is 21.44%, which is slightly higher than last week. However, if your credit score falls in the good or excellent category, you can reduce this interest.
This saves you a lot of money over the life of the insurance plan. Not only this, but a low interest amount means you can pay back the debt quickly, hence focusing on other priorities.
Better Credit Card Rewards
Another benefit of a good credit score is that you can get plenty of credit card rewards and perks. Here’s how it goes – you get a reward credit card, and it’ll allow you to earn cash back, points, and miles for every dollar you spend. You can then redeem these rewards for a variety of things, such as:
- Flights
- Discount on Vacation Rentals, Meals, and Hotel Rooms
- Insurance Coverage
- Statement Credits to Lower Your Balance
Other than that, your good credit score can also help you get some introductory bonuses and incentives. For instance, when you sign up for a specific credit card, you can enjoy hundreds of dollars in incentives once you reach a spending threshold.
What Impacts Your Credit Score?
Here are some reasons that may put your credit score in the bad or poor category:
Late Payments
Do you know that payment history is one of the major (35%) deciding factors of your credit score? This means that one late payment and you should buckle up for a downhill ride!
Know that lenders and creditors use your payment history to gauge your financial reliability. If you make late payments, they will surely report that to the credit bureau, and it’ll also be reflected in your credit report.
This poor financial standing greatly impacts your ability to secure a loan in the future, putting you in a difficult situation.
The Subject of County Court Judgement
In the UK, a County Court Judgement (CCJ) refers to a legal decision made against you if you fail to repay your debt on time. It can severely damage your credit score as well as financial credibility.
The worst part is that a CCJ stays on your credit history for six years. During this period, you may not be able to get loans, credit cards, or even rental agreements.
No Credit History
It may come as a surprise to you, but having no credit history can also lower your credit score.
Well, it’s because if you have never taken out a loan or credit, the agencies have no information about your credibility. They cannot assure the lender whether you are reliable or capable of repaying the borrowed amount.
Hence, you may be considered a high-risk individual, making it difficult to prove your trustworthiness when securing credit cards or other loans.
How to Improve Credit Score?
Maintaining a good credit score is mandatory if you want to secure loans quickly and on flexible conditions or if you want to enjoy additional perks and rewards. Here are some tips that can make it all easy for you:
Make On-Time Payments
It goes without saying: to improve your credit score, you should tend to on-time payments. For instance, you should ensure that all your bills, whether they are utility bills, credit card payments, or loan repayments, are paid timely.
However, if you forget to make payments, then you can set reminders on your phone.
You can also set auto-pay so the money moves automatically from your account to the payee on the due date. Slowly, your credit score will increase, offsetting the impact of late payments.
Aim for 30% Credit Utilization or Less
Your credit utilization shows how much portion of a credit limit you use at any given time. It’s the second most important factor in deciding your credit score, taking up 30%.
Therefore, to improve your credit score, you should avoid maxing out on your credit limit. To do this, you should pay your credit card balances in full each month and keep your outstanding balance at 30% or less.
If this doesn’t sound easy, then you can also request a credit limit increase from the specific company. All you have to do is update your annual household income online, and after verification, your credit limit will be enhanced.
Avoid New Credit Applications
Many cards offer rewards and bonuses to lure you into opening new accounts, but you should avoid getting into the trap. It’s because new accounts and multiple card applications show you as a high-risk individual to lenders.
Not only this, but every time you request credit, the lender will perform a quick “hard inquiry” on your account, which negatively impacts your score. So, the best thing you should do is avoid opening multiple accounts or filing applications and enjoy lasting perks.
FAQs
Why is it important to check your credit report regularly?
Checking credit reports regularly helps you monitor your financial health, identify errors, and detect theft. You stay assured that all the information in your report is correct, and in case of any misinformation, you can consult the financial institution for correction. Most importantly, it tells you about your credit score standing so you can take quick measures to improve it.
What can you get with a good credit score?
You can get many advantages with a good credit score, such as easier loan approvals, lower interest rates, higher credit limits, and card rewards. In some cases, a good or excellent credit score can greatly boost your chances of getting a job.
How long does negative information stay on your credit report?
Negative credit information, whether it’s late payments or bankruptcy, stays on your credit report for up to 7 years. However, if you file a Chapter 7 bankruptcy, it stays there for up to 10 years.
Conclusion
Maintaining a good credit score easily opens doors to many opportunities for you, whether it’s easy and quick loan approval or lower insurance premiums. If you are unaware of your financial health, aka your credit score, you can rely on PFScores.
The platform takes a 360° view of your spending and debts to generate a personalized financial score. Overall, the process is quick, taking around just 10 minutes, so you have your asset, risk, and debt management information right away!