What Is Good Credit?
Let me explain what good credit really means. It's a way to classify your credit history, showing that you have a pretty high credit score and you're seen as a safe bet for lenders. Credit scores come from credit reporting agencies, and lenders use them to make decisions on whether to give you credit or even for background checks.
Key Takeaways
- Good credit classifies your credit history as having a high score, making you a low-risk borrower.
- Agencies assign scores based on your credit history in a credit report.
- Lenders review these scores for underwriting credit and background details.
Understanding Good Credit
Credit rating agencies give you a score based on your credit history, all tracked in your credit report. The scoring methods can vary, but the FICO score is the one most people use.
Your credit score can be anywhere from 300 to 850. It's divided into five tiers: exceptional, very good, good, fair, and very poor. If you have good credit, you're in one of the top three tiers. Experian says exceptional or excellent is 800 and up, very good is 740 to 799, and good is 670 to 739.
So, if your score is around 670 or higher, you have good credit and the best shot at getting approved for credit by lenders.
The bottom two tiers are fair and poor. If you're in these, it's harder to get credit, and you'll likely pay higher interest rates through subprime loans. Fair is 580 to 669, and poor is 579 or below.
Borrower Considerations
You can take several steps to boost your credit score. Payment history makes up 35% of it, so any late payments hurt your score and stay on your report for seven years. Make your payments on time and avoid delinquencies to see improvements.
Another quick way is to lower what you owe overall. Credit utilization is 30% of your score, so paying down debts significantly can help right away.
While reducing debt is usually the top method, you could also ask your credit card company for a higher limit. This lowers your utilization ratio and might improve your score, but they might not approve it based on your profile. If they do, use the extra credit wisely so you don't end up worsening your score.
Other things affect your score too, like how long you've had credit, the types of credit you use, new credit lines, and recent inquiries. Be careful with new credit applications—a bunch of hard inquiries in a short time can drop your score and make you look riskier to lenders.
Lender Considerations
Your credit score plays a big role in what kind of credit you can get. Traditional lenders usually go for borrowers with good credit, meaning scores of 670 or higher. You're more likely to get approved and snag better terms than someone with a poor score.
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