What is a good credit rating and what factors determine it?

Credit score
Several factors influence your credit score and it is important to understand them.

Getty Images

If you’re trying to up your personal finance game, working on your credit score is a good place to start. But what really constitutes a good score? And, more importantly, how to increase it?

There are a number of factors that influence your credit score, and it’s important to address each of them in order to raise it as much as possible. In this article, we’ll go over these factors and give you an idea of ​​what kind of score to aim for.

And remember: if your credit score is low, or just not as high as you want it to be, you have options. Credit repair professionals can help you today.

What is a good credit rating and what factors determine it?

FICO and VantageScore are the two main companies that compile credit scores. FICO is used by 90% of lenders, while VantageScore is mostly used by sites that offer free credit scores. Both companies use a similar scoring algorithm, so the two credit scores should be relatively similar.

FICO and VantageScore credit scores range between 300 and 850. Anything above 670 is considered good, while scores above 800 are considered excellent.

Building a good credit score is easier than you think, but it will take time. The most important factor is payment history, which accounts for 35% of your credit score. If you consistently make your bill and loan payments on time, your score will improve.

Late payments beyond 30 days will be reported to the credit bureaus. The later the payment, the worse the impact it will have on your credit score. If you forget to pay a loan or credit card bill, you should do it as soon as possible.

The second most important factor in a credit score is your credit utilization percentage, or the amount of credit you are currently using compared to the total amount of credit you have. This represents 30% of your credit score.

To calculate your credit utilization percentage, add your current credit card balance and divide it by the card’s total credit limit. You must have a credit utilization percentage of 10% or less to maximize your credit score.

You can improve the credit utilization percentage by paying off your credit card balances. Start with the card with the highest usage percentage and work your way down to below 10%.

If you got into debt and your credit suffered, you can also get help. Get a free credit report today and start improving your score.

How to find your credit score

There is no single credit score for every consumer. FICO and VantageScore produce different credit scores for different types of loans. They also update the scoring algorithm every few years. This is why each consumer can have several credit ratings.

In general, you can use free services to check your credit score. Many banks and credit card providers also provide a free credit score. Just be aware that you probably won’t see the same score that a lender will see.

Checking your score regularly is a good way to monitor progress and make sure it’s on the rise. It’s a good idea to check your score at least once a month to make sure that no errors have been reported to the credit bureaus and that you haven’t done anything to affect your score.

It’s important to stay on top of your credit score and history and work to improve it.

Benefits of having a good credit score

Good credit is essential for applying for loans, lines of credit and credit cards. Approval is much easier when you have good credit and you are more likely to qualify for a low interest rate.

Here’s how much a good credit score can help you. Let’s say you want to take out a $200,000 mortgage and you have a credit score between 620 and 639. You might qualify for an interest rate of 6.788% on a 30-year mortgage. If you had a credit score between 680 and 699, however, you would qualify for an interest rate of 5.598% and end up saving $55,565 in total interest.

Having good credit can also make it easier to set up utilities for a house or apartment. If you don’t have good credit, you may need to provide a refundable deposit. Car insurance companies will also perform a credit check, and those with good credit may pay lower premiums than those with bad credit.

Have a poor or lower credit score? Act now to compete for the best rates and conditions.