As many people know, credit scores are a reflection of a personâ€™s creditworthiness. These scores are made up of a number of factorâ€™s including a personâ€™s payment history, credit utilization, credit history, and several others. Credit scores range from 300-850 with 300 being the worst possible score and 850 being the best possible score.
Credit scores are generally separated into four categories: Bad, Fair, Good, and Excellent. The rankings for credit scores are as follows:
Bad: 300 – 629
Fair: 630 -689
Good: 690 – 719
Excellent: 720 â€“ 850
So, the banks typically classify â€œGoodâ€ credit scores as credit scores that range between 690-719. However, the exact numbers can vary from bank to bank. The Fair Isaac Corporation, which developed the credit scoring system classifies a Good credit score as any score between 670-739. So, there can be some variation, however, a Good credit score is usually a score that is in the high 600s to the low 700s.
How Common are Good Credit Scores?
Roughly 21 percent of Americans have credit scores that fall into the Good category. The average credit score in America is 711. So, many Americans achieve credit scores that fall between 690-719. However, moving higher above this range and into the â€œExcellentâ€ range can be difficult and can require a lot of financial discipline. For this reason, many people never make it out of the Good range.
What are the Benefits of Having A Good Credit Score?
There are many benefits of having a Good credit score, and that is why so many people try to get their scores into this range. Here are some of the top benefits of having a Good credit score.
Lower Interest Rates
If your credit score is Good, it means that you have proven to be reasonably capable of managing your money and your credit. Because of this, many lenders will be willing to offer you lower interest rates for things like car loans, auto loans, and personal loans. Having lower interest rates for your debt is highly desirable because it means you will have to pay less money throughout the life of the loan as you repay it.
Lower Car Insurance Rates
Many car insurance companies take credit scores into consideration when giving you an insurance rate. This is because people who manage credit responsibly are often viewed as being more likely to drive responsibly. So, the better your credit score is, the lower your auto insurance rate will often be.
Better Odds of Being Approved for an Apartment
Many landlords and rental property owners will run your credit before approving you for an apartment in their buildings. This is because they want to make sure that you are going to be able to pay rent on time every month. The higher that your credit score is, the more likely you will be to get approved for an apartment rental.
Being Able to Get Unsecured Credit Cards
Unsecured credit cards are credit cards that do not require collateral to be given upfront. Often times, credit card companies will only give secured credit cards (cards that require collateral) to people with poor credit scores. So, with a Good credit score, you can get approved for an unsecured credit card, and oftentimes, you can get approved for a credit card with a high credit limit.
Better Odds of Being Approved for a Mortgage
Just like landlords, most mortgage lenders will run your credit before approving you for a mortgage loan. The higher that your credit score is, the more likely you will be to get approved. So, if you want to buy a house using debt to finance the purchase, then having a good credit score will help you to get approved.
How to Raise Your Credit Score
The nice thing about credit scores is that they are not permanent. In fact, they are updated about once per month. So, if you have a lower-than-average credit score now, you can work on it and improve your credit score.
As mentioned above, credit history, payment history, and credit utilization all are factors that go into your credit score. In order to raise your credit score, you want to have as long a credit history as possible, you want to use the least amount of your available credit as possible, and you also want to make sure that you pay all of your bills on time. If you can do these three things consistently, then there is a very good chance that you will see your credit score improve sooner rather than later.
There are also several other factors that go into the creation of your credit score. These factors include credit mix, and new credit. Credit mix refers to the types of credit that you have. You want to have at least a few different credit accounts in order to optimize your credit mix. Different credit account types include car loans, personal loans, and credit cards.
New credit refers to the number of credit accounts that you have opened recently. If you open too many credit accounts too quickly, it can be bad for your score. So, try to space out the opening of your new credit accounts.
If you can move your credit score into the Good or Excellent rating areas, then you can experience a wide variety of benefits. However, getting your score into these areas is not always easy. In fact, for many people, it can include dramatically altering their lifestyles. This is especially true for people who are used to not paying bills on time and living above their means.
Most people will have to deal with the consequences of their credit score at some period, whether it be when they apply for a car loan, a mortgage loan, or an apartment, etc. If you have not been acting responsibly, then you can experience a wide variety of negative consequences. However, if you have been acting responsibly and managing your credit and bills effectively, then you can experience benefits such as lower interest rates and higher approval rates for mortgages, and other loans.