It’s the common worry among consumers. “Is your credit score good enough?” No one can answer that question 100%. You can look at your score and see where it falls within the category ranges. But even that doesn’t tell you if it is “good.” It’s a relative answer. It depends on who you ask. It also depends on what you are trying to achieve. Here we look at all the factors.
Why a Good Credit Score Matters
First, let’s look at why good credit score even matters. You know you need a higher score to get credit. But what does it mean? Lenders look at it to measure your financial responsibility. A higher score means you aren’t in over your head. You may pay your bills on time. You may not overextend your credit. You may also have had some mistakes in there. Overall, though, you have your head on your shoulders.
A lower score may mean you are not as responsible. It could also mean you ran into unexpected trouble. Creditors don’t assume you are a “bad” person if you have a lower score. They look at the big picture. Did you pay your bills late? Did you overextend your credit? Then they may ask you why this happened. Maybe you lost your job, fell ill, or got injured. They look at the reasons and add everything together. Then they make a judgment on your financial responsibility. So a low score isn’t always bad, but it might make things harder for you.
What’s a High Score?
Now comes the magical question. What’s a high score? There is no magical number. One lender will tell you one thing and another something else. It depends on their threshold for risk. It also depends on your other factors. There is a general guideline that we will provide below:
- Scores over 750 may be excellent
- Scores between 700 and 749 may be good
- Scores between 650 and 699 may be fair
- Scores between 600 and 649 may be poor
- Scores below 600 may be bad
Again, we say “may” because every creditor differs. Some may look at a 700 credit score as great. While another lender may say it’s fair. They may make this assumption after looking at the reasons for the score. If you have late payments, they may consider you irresponsible. If you have too much credit outstanding, they may just think you got in over your head.
Find Out Your Score
You should never assume you know your credit score. Let’s say you are the “perfect” consumer. You pay your bills on time. You don’t overuse your available credit. You also don’t have a lot of installment loans. There is nothing saying you have great credit. It depends on many factors. They include the age of your accounts, your utilization rate, and your payment history. The mix of the types of accounts you have also matter. Before you assume, get your credit score. There are companies that provide it for free. Many credit cards offer it as a service. Once you know your score, find out the reason why. Then dive further into your credit reporting.
It is crucial that you look at your credit reporting. Mistakes happen. You may have inaccurate information reporting. Every transaction reported affects your score. If something isn’t right, your score is not a good reflection of your financial responsibility. Get with the credit bureaus to find out how to fix inaccurate information.
If you have correct information that is negative, you must fix it. Late payments should be brought current. Collections should be taken are of. Overextended credit should be paid down. Of course, this won’t happen overnight. At least know what you need to do and then take the steps to do it.
Perfecting Your Credit Score
There is no magical way to perfect your credit score. Just be a good consumer. Don’t charge things you can’t pay off. Don’t apply for numerous new accounts within a short period. Watch your payments; make sure they are on time. Don’t close your old accounts. The longer you have an account open, the more it helps your credit score. Too much new credit can harm your chances of a good score. Of course, late payments or negative economic events hurt it too. Bankruptcies and foreclosures are the worst. But, you can recover from them. Your credit score is ever evolving. Don’t assume you are stuck with a bad score once you have one. Take the steps to fix it and you can have a great score in a short time.
The key is to stay on top of your credit score. Whether you use a third party or go straight to the credit bureau, watch your score. It changes often. Don’t assume because you have a good score now that it will still be just as good 3 months from now. Experian, Equifax, and TransUnion all offer free credit reports annually. Obtain one from each bureau throughout the year. This way you have an idea of what creditors report about you. This can help you make credit decisions in the future. It can also help you fix your credit problems.
Determining if your credit score is good enough is a personal opinion. It also depends on what you are trying to achieve. If you need a new mortgage, you should aim for a high score. This will give you access to the best interest rates and lowest closing costs. If you need a new credit card, you may not need as high of a score. Always strive for financial responsibility. Don’t overextend yourself. Don’t overuse your accounts and watch how many inquires you have reporting in a short period. This way you can maximize your credit score and increase your chances of approval. Only apply for new credit when you need it. When you use it, do so responsibly. This way you should have the highest score available to you.