What It Mean To Have Good Credit Scores

Why is your credit score very important? Well

, because it measures how creditworthy you are. Creditors depend on your credit score to predict whether you are a low or high risk. If you are considered a high risk then creditors will see you as someone who will have difficulty paying. A high risk is, of course, associated with a low score. You could be denied credit or be charged with higher interest rate with a low score.

So, what's a good credit score? It really depends on who computes your score and what computation method they are using. Usually, the method developed by Fair Isaac and Company (FICO) is used but variants of FICO are now being used by other credit bureaus. Experian, Equifax and TransUnion are the three major credit bureaus who developed the method with Fair Isaac and Company.

Fair Isaac says that 700s is high score for agencies that buy mortgages from banks and resell them to investors. These agencies take a FICO score above 620 as good while consumers who have scores below 620 should be enduring more inquiries from the lender. People with a score of 760-770 are usually those who get the best credits. The mid-700s or a score of 730-750 is considered high to average by most lenders. Some would even say that 730-750 are scores that represent a good credit history.

Meanwhile, a credit score of 723 is average. In fact, this is the Median FICO score in the US according to Fair Isaac. Some lenders would still consider 710-720 a good credit risk. If you are on this score range, most creditors would interpret you as being in good shape credit-wise. Do you need to raise it? Not really because most creditors will group you with people who have a score of 800-820, anyway. A score of 700 is still considered healthy but you need to make an effort to raise it and be careful not to fall to the 600s.

A score range of 580-690 is risky but only to some lenders. Most would still consider this average though not high credit score. There are about 43% of loan applicants who fall under this range. People who have this need to be careful not fall on a lower range because that can really be a problem.

FICO score of 660 or below, however, are generally borrowers who have problems in their credit history that may include two or more 30-day delinquencies in the past 12 months, one or more 60-day delinquencies in the last 24 months, bankruptcy in the last 5 years, etc. Anyone with a score below 550 is considered a high risk and will have trouble getting credit.

by: Leo Chu

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