What is a Good Credit Score and How to get It

What is a Good Credit Score and How to get It

With today's economy being primarily driven by credit, getting a good credit score has become vitally important. Not only is it the major factor considered for loan approval, but people who have high rating scores are generally afforded more opportunities. As a result, more and more people are looking for ways to lower their credit risk in an effort to look more favourable to lenders. But exactly what is a good credit score?

Credit Score Range

The fact is that there are a number of formulas and standard used to judge what is a good credit score. Although not all lenders use the same basis, the majority of them refer to the FICO method developed by the Fair Isaac Corporation. The particular credit scoring pattern judges a person's financial standing based on a set of number ranging from 500 to 850 with 850 being the most favourable of the lot. Those who are within the 700 range are considered excellent debtors and basically have no problem being approved for a loan with a reasonable interest rate. The acceptable range falls between 620 and 679, making this the limit for what is a good credit score. Those who fall to the 499 and below category are considered bad risks and would find it harder to find loans with reasonable interest rates. Other credit institutions on the other hand utilize what is called the BEACON method including some of the top credit bureaus like Equifax, Experian, and Trans Union. Regardless, lenders basically use the same variables to arrive at a score, some of which include payment history, outstanding balances and duration of a credit.

Getting a Good Credit Score

One misconception people usually have is that a bad credit score would prevent them from getting their loans approved. On the contrary, it is possible to borrow money with any type of credit score possible. However, the catch is that the interest rates for the loan would be so high to the point of being unreasonable. Hence, it is still important to stay within the boundaries of what is a good credit score for most lending institutions. For people who find themselves classed within the "bad" category, it is important for them to be patient while slowly working their credit rating upwards. As mentioned above, the factors used to arrive at a credit score include past credit history, making it necessary to build a reputation that would reflect on the final ranking. On time payments and paying a loan ahead of schedule are only some of the ways that people could pull their credit score towards the acceptable levels. However, this takes a long time to build up to and would ultimately be useless for sudden needs. This is why knowing what is a good credit score and working towards achieving it right now is vital in preparation for any sudden financial needs in the future. Otherwise, people who have no choice but to resort to loan deals that would come with a large interest rate.

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