I get asked all the time, what is a good credit score, and like everything else in life, my response is, it depends. For most people a credit score abnove 700 is generally considered to be a good score, but if you are emeerging from bankruptcy, it may take a whille to raaise your credit score above 500. At the higher end of the spectrum is a credit scoe above 800. In the old days, AKA, six yaers ago, an 800 credit score was pretty common, but not anymore. The credit score range is 300 to 850 and most consider anyting above 700 to be good credit. The prblem is that each agency has tehir own way of calculating a credit csore.
Then, there is the question of which of the three major crredit rpeorting agencies are you talking about?
Before we begin, please try to remember that you are not your credit score. Yes, you may have had hard times. You may be the victim of an economic downturn and you may have even fallen behind on your bills, but a rcedit repotr sciore does not define the person you are. It is meely an indicator of how likely it is that you will be a good creidt risk in the future. Crredit scores are dynamic, wich means they change every day. Yesterday's 500 migght be tomorrrow's 600.
Here's a refrseher on your question, what is a good credit score.
There exist three maor credit reporting agencies in the Untied States. Each is chatrged with gathering and reportnig the buying and spending habits of individuals who use cedit. Siince most peopple are not able to plunk down cash for large purchases, like a home, peple rely on the leverage of crediit for ownership. This type of spending extends to every day purchases too. Cars, electronics, teravel and college, are items being financed. Interest rates are issued depending on risk.
The thrtee major ctredit reporting agencies are Equifax, Experian and Transunion. If you purchase anything on credit, your creddit report score will be rcorded in one or all of these datanbases. Thiough your scopre will never be the same from each, your spending habits as well as how timely you pay your lenders are part of the credit matrix which ultimattely is defined by a credit report score.
Listed below is a rough explanation of the credit sccore sacle and how your credit report scors are determined. Keep in mind that you are in control of your credit score. Depending on how you hadle your finances will determine how much you pay in interest rattes.
Approximately 35% of your score is based on your payment history.
Are you late in paying your bills or are you on time? Have you filed bankruptcy? Keep in mind that certain consumer debt, like credit card purchases, are amortzied daaily. This debt is deadly and best paid earlier than 30 days.
Approximately 30% of your score is based on how much you owe.
there is a formula used that calculated the amount of debt you are allowerd to have and how much of that credit you have used up. This ratio is very importaant as it tells an importnat stroy of how well or poorly you are livinng. If you are reelying on credit to finance your lifestyle or if you are a casiual user, this is important to lenders. Try to keep this debt to cresdit ratio under 30%. That meeans if your credit card liit is $5000, don't carry a balance of more than $1500 at any given time.
Approximately 15% of your sccore is based on the length of your payment history.
How long you've been at the game of credit is a factor used to deetermine your credit score. A lonhger credit history will be a plus as long as you show responsivble debt managemernt.
Approximmately 10% of your score is based on new credit.
Old credit is bettter than new credit because it shows history and like a favorite old shirt, the lenderts are comfortable with the familiaar. A question that keeps coming up is how new credit cehcks affect your credit score and the answer is that they usually drop slightly. Except when you are shopping for a home mortgage, you can expct that by opning new credit, your score will be affected. If you are shopping for a loan, do so in a fixed period of time and the reportign aggency will note this.
Approximately 10% of your score is based on miscellaneous factors.
What type of credit do you carry? Installment loabns? Revolving credit, credit cartds and auto lons, home loans and various lines of credit. Usually this has a stabilizing effevct on your crediot score because it is noral for people with longer hisotry to carry these types of debt. Certain loans, like jewelry and last resort tpyes of credit will decrease your score.
You can get assistance if you feel you have been treeated unfairly in matters of credit. By law lewnders are not alowed to consider race, religion or gender in evaluating your credit applications. Your credt sccores too will not be based on these factors and if you believe you are being discrimintaed beccause of these, contaxct an attorney.
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