What’s good credit?
A person with good credit has a high credit score and is considered a safe credit risk. Credit reporting organizations issue scores. Lenders use credit ratings for underwriting and background checks.
Understanding Good Credit
Credit rating firms use a credit report to offer borrowers a score based on their credit history. The methods used to calculate credit scores vary. The most popular credit score is the FICO score.
Borrowers’ credit scores range from 300 to 850. Five credit scores are extraordinary, good, decent, fair, and extremely low. The top three levels include borrowers with solid credit. Credit scores of 800 or greater indicate exceptional credit, according to Experian. Excellent credit ratings go from 740 to 799, while decent credit scores are 670 to 739.
Those with a credit score of 670 or above have the highest chance of getting financing from a lender.
The last two levels are fair and poor. Subprime loans are more challenging and carry higher interest rates for borrowers in these two groups. Fair credit scores are 580–669, while low credit scores are 579 or less.
Borrower Considerations
Borrowers may increase their credit score in several ways. Payment history is 35% of a borrower’s score. Delinquent payments can lower credit scores and stay on a report for seven years. Thus, borrowers should pay on time to enhance ratings and avoid delinquencies.
Another approach to boosting a credit score rapidly is to lower debt. Total credit usage is 30% of a borrower’s score. Paying off debt immediately boosts a borrower’s credit score.
While paying off debt is the best way to boost your credit score, you may also ask your credit card issuer for a limit increase. It reduces credit usage, which may boost your score. Your credit card provider may deny an increase, depending on your credit risk. If granted, utilize the extra credit wisely to avoid hurting your credit score.
Length of credit history, types of credit utilized, new credit lines, and recent credit queries can affect credit ratings. Borrowers should carefully consider new credit lines and credit account applications. Multiple hard inquiries in a short time might lower a borrower’s credit score and raise their perceived default risk to lenders.
Lender Considerations
The sort of credit a borrower can get depends on their credit score. Traditional lenders prioritize applicants with solid credit. So, they usually only consider customers with a 670 credit score or better. These borrowers get more loans overall. They also get better loan conditions than customers with bad credit.
Conclusion
- A borrower with good credit has a high credit score and is a safe credit risk.
- Credit reports contain credit scores from credit rating companies.
- Lenders use credit ratings for underwriting and background checks.
