A good credit rating is something everyone aspires to achieve. After all, having a good credit score determines whether you can borrow money or not, and it establishes what interest rate you get when you do borrow money.
Trying to figure out what specific number determines a good credit score is often tricky. After all, lenders use a lot of different values to determine whether you receive a loan or not.
One lender might see a specific number as a fair rating, where another lender sees that same number as good rating. Fortunately, there are some basic rules that can help you figure out if your credit score is good or bad.
Range of Credit Score Ratings
Most credit scores range from 300 to 850. Generally, lenders view 700 as a good credit rating. Below are the categories of credit scores, ranked from bad to excellent.
- Bad Credit: Below 600
- Poor Credit: 600-649
- Fair Credit: 650-699
- Good Credit: 700-749
- Excellent Credit: 750+
These numbers are not set in stone with every lender. Each lender has their own guidelines when defining a good credit score.
Some lenders might approve a loan with a rating of 680 or higher, whereas another lender will only approve loans with a score of 750 or above. Those with lower rates are usually charged a higher interest rate on the loan, if approved.
Why You Need a Good Credit Score
Today, society is very dependent on their credit to make major purchases and decisions. We depend on a good credit score for more than just loans and credit cards. Below are some major reasons you need to maintain a good credit rating.
Credit Scores and Housing
When you apply for a home loan, the mortgage lender needs assurance that you will not default on the loan. If your credit is bad, they consider you a risk to handle a large mortgage loan.
If approved for a mortgage loan, the interest rate is based on your credit. Consequently, this determines the amount of your monthly mortgage payment. The better your credit rating is, the better your monthly mortgage payment will be. Alternatively, a bad credit score could mean you are denied for the loan.
Even if you are not applying for a home loan currently, your credit is still important. Landlords for apartments also review your credit score before approving you for an apartment lease. The landlord sees the apartment lease as a loan. You can be denied the apartment lease without good credit scores.
Credit Scores and Transportation
Unless you’re independently wealthy, chances are pretty good that you’ll need a loan to buy a new vehicle. Your credit score determines if you qualify for the loan, and it determines the loan amount and interest rate on said loan.
Normally, with good credit, you qualify for a larger amount of loan with low interest rates. A bad credit score means a high car payment with a high interest rate, if approved.
Credit Scores and Employment
Believe it or not, most employers run a credit report on you before hiring you. If they feel you aren’t financially responsible based on your report, they might hesitate to hire you.
Some might feel the salary they offer will not be enough for the amount of debt you owe. The employer might also check your credit rating if you are attempting to be promoted to a finance-related position within the company.
Credit Scores and Small Businesses
If you dream of owning your own business, a good amount of cash is necessary. If you don’t have cash on hand, you need to find a bank to loan you a small business loan.
Having a good credit rating helps ensure you receive the loan. No one wants their dream shot down due to a bad credit rating!
How to Improve Your Credit Score
There are several ways to improve your credit score, but the most effective and fastest way to build your score is by paying all of your bills on time, or earlier, and with careful use of your credit cards. Below are some other things you can do to improve your score.
Evaluate Your Credit Report
You can receive one free credit report from all three reporting agencies every year by visiting www.annualcreditreport.com. Look over your reports carefully and fix any discrepancies found. Dispute all errors, and follow up with the credit bureau to ensure errors are removed from your report.
Set Payment Reminders
Use a calendar to set reminders for when your bills are due. By paying your bills on time on a consistent basis, your score could rise within a few months.
Make Extra Payments
If you can swing it, make payments on your bills every two weeks instead of just once a month. This will quickly improve your credit score. Consequently, it lowers the amount of your credit utilization, as well.
Talk to Creditors
If you missed some payments or deadlines on bills, call your creditor and set up a payment plan. By addressing the problem quickly, you can reduce the negative effects of your late or non-payments. Creditors appreciate your willingness to fix the problem and help you get back on track.
Say No to New Accounts
It will hurt your credit score if you continue to open new credit card accounts. Work on paying off your old credit, and resist opening new accounts. Additionally, if you have a paid off credit card account, leave it open.
Your age of credit history does matter, and the longer it is, the better it is. Do not charge anything new on the account, but leave it open to improve your history report.
Debt Consolidation Plan
Sometimes, consolidating your debt temporarily lowers your score, but if you enroll in a program to consolidate debt and make on-time payments, your score will improve relatively soon.
Continue to Monitor Your Credit
You should consider signing up for a top-rated credit monitoring service to help you keep an eye on your credit score. You’ll also get the added benefit of being alerted to any fraudulent charges being made with your personal information.
Normally, it takes approximately six months of improved credit habits to notice a change in your credit rating. Even though it’s difficult to know exactly how long it will take to repair your credit, if your report begins showing fewer late payments, lower balances on credit cards, and no new applications for credit, your credit score raises faster.