One of the most common questions when it comes to credit repair and credit reports is what’s a good credit score? Considering that a bad credit score or even a fair one can affect financial decisions companies make about you it’s important to monitor your credit score and act accordingly to build it up if it drops.
Who decides your credit score?
Credit scoring is managed by the Fair Isaac Corporation, otherwise known as FICO and so your credit score is also referred to as your FICO score. The score ranges from a very low 300 to the highest score of 850. Most people will score somewhere between 600-700 and if your score falls in this range there is a good chance you can improve it by some clever management of your finances such as keeping your credit card balances low which means less than a quarter of the total owed.
The FICO credit score is determined using a combination of your financial history which includes events such as bankruptcies or missed payments, what type of credit you were approved or disapproved for such as mortgages or loans for cars, your credit history and such things as what credit you applied for and were refused. Your credit score should basically reflect your financial dealings and history.
The way your credit score is calculated and the things that affect it does not really change but what does differ is the threshold at which a score becomes good or bad and this can also vary between lenders and card issuers. The current political and financial situation also becomes a deciding factor in whether you are considered a good or bad risk. In economic downtimes when lenders are reluctant to hand out loans the credit score threshold will be higher than in good times when money is in plentiful supply and lenders are more likely to be generous. For example, a few years ago a credit score of 720 would be considered to be good whereas now you would need a score of 760 to be considered the same risk.
What can impact your credit score?
As mentioned above your credit score is calculated by taking many factors into account. However, there are some definite elements which will affect your score in a negative way such as how many and by how much late payments you have had, what type of credit you have and the size of the loans, also, how old they are and the total amount of money you owe. Funnily enough, what isn’t factored into your credit score is how much you earn so your income has no bearing on what credit you can get at all.
Can you increase your credit score?
Yes, it is possible to increase your credit score but it won’t happen overnight so you need to be patient and have a strategy. Firstly, if your finances are in a mess you need to organize them otherwise if you are still missing payments or having other financial troubles there is no point in trying to raise your credit profile.
One of the ways to increase your credit score is to pay off outstanding balances on your credit cards. You don’t have to pay off the whole amount but try and get it to below a quarter of the outstanding amount. Lenders do not like to see your lending capacity maxed out so this will send a good message that you are not running at your absolute limit. Related to this is not using your cards too much or for huge amounts. If you look like you are a heavy spender it gives the wrong image to lenders.
Check your credit reports for any mistakes or errors and make sure that your address and name are all correct so that you are not carrying the can for someone else’s mistakes. Don’t go out and apply for credit here, there and everywhere. If you are unlikely to get it, don’t apply for it as this just leaves a negative impression on your report. Be careful who you apply for joint credit with. If your partner has a bad credit rating and you share an address you will be tarred with the same brush.
It pays to monitor your credit standing as it can affect your insurance, loans, even job prospects. However, if your credit score is lower than you would like, use it as motivation to get your financial house in order.
I have had a somewhat lower credit rating stemming from a very old gym membership from Balley’s Fitness dating back to 2003. Since then, I have not really applied for credit nor checked my credit report, but I am wondering if that particular gym credit dispute is still affecting my credit score. The reason I think it may no longer be in effect is because Balley’s Fitness was the defendant in a class action law suit a few years ago by former members like me. I never did find out if they won or lost, but I imagine that if they lost, they probably had to wipe the slate clean with all former members or at least just those who were involved in the law suit. Obviously, I am hoping they lost and paid restitution to every former member.
Most of the people that I’ve talked to have had the fastest results by disputing items on their reports. Seems to be the quickest way to get a good jump in score.
The way they figure your credit score really isn’t the best since they do not figure your income into it, it isn’t exactly accurate. Building your credit score back up after just a couple of hits is a lengthy task and take a lot of work. After we filed bankruptcy one way that we re-built our credit score was to get low balance credit cards, then we would go buy like groceries once a week with the card and then pay it off at the end of the month, because that was money we budgeted as cash anyway we just it aside and used it at the end of the month to pay off the card. It took awhile but it finally worked. What amazes me is how fast your credit score can go down with just one missed payment.
Having a good credit score is more important than I thought. Not only can it affect my insurance, but I didn’t realize that it affected my ability to land a particular job. I’ve always just kind of thought, well, big deal if my credit score is low. I will definitely be paying closer attention to it by paying down my credit cards more and watching my impulse spending.
In today’s society it is imperative that you keep your credit score high and clean. It isn’t always the easiest thing to do but if you manage it correctly it can be done. By following the tips in this blog you can keep it clean which will help keep it high as well. My only suggestion is that you check your credit score periodically to make sure it is what it is supposed to be. With all of the identity theft these days it is easy for someone to get credit cards etc. in your name and they will show up on your credit score and then you will have to dispute it and then it is just a big hassel.
I do not think it is fair that your credit score can affect accounts that you already have open and have had open for years. My insurance is effected just like Melanie was saying in her comment and I have had insurance with them for going on twenty years now, but if my credit score goes down I end up receiving a higher monthly bill then I previously did, this month it went up twenty dollars and I have a feeling that is why. Does it make sense to anyone out there that when you are on hard times and can’t make certain payments because of no money, that is when they raise the price of your bill. Do they want me to not be able to pay them as well?
I did not know about the Fair Isacc Corporation and that it is the paramount credit agency that establishes your credit rating. I always thought that there were different credit rating agencies all of which worked independently and that is why I assumed there was so much discrepancy and / or confusion with what a person’s real credit rating is. In other words, I have heard on a commercial that you need to know and improve your credit score with 3 major agencies.
A good credit score is very important, keep an eye on your credit score because it is possible that there is someone out there that has your information and is opening accounts in you name that you don’t know about until it is to late. Or, like in my case, it was an honest mistake by the credit bureau that they confused me for someone with the same name, and one with the same social security number except for one single number. If you keep track of your credit score then you will notice when something changes and you can dispute it with the creditor quickly and hopefully get it handles before it blackens your credit. Thank you for the advice in your article it was very helpful.
Thanks for sharing this useful resource. It’s very helpful.
A credit score is something some bureaucrat came up with so that the banks can tell you that you aren’t good enough to loan money to with out having to get to know you personally. If you want to know if you have a good one, I would say if you have a car loan, mortgage, and credit cards and you have never been late on a payment to either of them and you have never missed a payment on either of them then you most likely have nothing to worry about. The entire credit score calculation just make me furious because what you did in the past is not who you are now but your past will come back to haunt you with a credit score.
Good information! It answered a couple of questions i had about determining credit scores.
This has to be one of the most confusing and misunderstood topics for most people. What I am wondering is if FICO is the primary source for credit ratings. Is this the definitive source, as in the one that issues the official ratings? Are all these other credit agencies merely taking their consumer credit ratings from FICO? These are the types of questions many are wondering about. Many people have a bit of trepidation about hiring a credit restoration service, not because there is something necessarily wrong with these companies, but mainly because they fear what they do not understand. Those who need outside help to get out of debt are so far in debt that they have developed a sort of fear about anything related to the topic of credit.
The comment that Lee left does raise a question with me as well, there are three credit bureaus that creditors report your activity to so I assumed they were the ones pulling the data together to give you your credit score. Is that not the case? Is one company putting your credit score together and that is it? Please post again explaining this a little further if you would. This blog was very informative I just think we would like a little clarification.
It was mentioned in this dialogue that credit can affect ones ability to land a job. I cannot imagine in what type of job would take your credit into account. All I know is that I am glad I do not work in whichever industry requires their employees to have a good credit rating. I can only imagine it must have to do with the image and reputation of the employer, such as a state attorney’s office or prestigious law firm or some industry where competitors can run background checks on anyone at very low cost. That’s not a job I would ever want unless it paid fat sums of cash.
I have a debt with a previous checking account I held with a bank. I wonder how much that debt may be affecting my credit score. Does anyone know if having a debt with a bank for over drawing on your checking account carries a greater penalty in terms of pints, than say a debt with a credit card or store credit? Does the amount of a given debt factor into your overall credit rating? My debt is a mere three or four hundred dollars. Once I settle this debt, does it take time to rebuild your credit rating? Or does it go up immediately after settling the debt and after the report of such a settlement is submitted to whichever agencies need to have it. These are all common questions I think most people will want answers to.
Wow, thank you for explaining a credit score to me, I am just now twenty and starting college soon but I have no credit established yet. I was doing some research on how to establish credit when I ran across your blog, I never knew that it meant so much. Basically I need to make sure that I always pay my bills on time, never miss any and pay my credit cards off each month and whatever credit I have established should stay clean correct? Thank you so much like I said for the helpful advice.
Wow! What a popular blog. And what a hot topic of conversation this seems to be. I guess I am not in the minority when it comes to people having some credit problems. My credit issues are not nearly as bad as some of the credit cases I have heard of – including that of my good friend, whose credit seems irreparable due to her many hospital visits during her pregnancy. And from what I have read, she is not alone in terms of having insurmountable debt due to necessary health care. It is about time America reform its health care system and provide it free for its citizens, the way Canada (Quebec or Montreal) does for its citizens.
A good credit score is what determines what you can own and do in life because you have to have good credit to buy a house a car or pay for a vacation even. Anything and everything is purchased on credit now a days unless you have a huge saving account, which God bless you if you do and you can pay for everything in cash. But for the more realistic it is based on credit. The best advice I can give is don’t miss a payment on anything and don’t even be late on your house or car payments because that will put a mark on your credit just like you missed one.
A good credit score is vital to living a normal life these days, every thing is done on credit anymore. As far as landing a job that was mentioned in Sandra’s comment, I do know that if you work in certain fields and you have to get security clearance they will run a credit check on you and if you have bad credit they will not give you the clearance required to do your job. That isn’t quite the same as not being given a job because of bad credit but almost.
I understand that a good credit score is very important in today’s society, but if you have a low credit score due to the fact that you lost your job and have not been able to make a few payments how long does it take to re-build it? I know that bad marks like late payments and such stay on your record for seven years unless you dispute them correct? How long does a bankruptcy stay on your record? If you have late payments on your record and you write the credit bureau will they remove them or how do you get rid of those bad marks? Any other excellent advice would be much appreciated.
I had no idea this FICO organization was the paramount source that determines your credit rating. I had always thought it was companies like the more well known credit agencies like equifax. So in light of what this article indicates, where exactly does Equifax, or any other credit agency, for that matter, fit into the whole credit rating industry? Are they simply agencies that present themselves as the primary authorities for your credit rating? What is the tree structure or hierarchy I should say, as compared to FICO?
You have given some great advice in your blog and you have pointed out the importance of keeping your credit clean so your score stay’s high. I hope that young people reading this, that are just starting out will pay close attention to your tips. Now days your credit score can literally make you or break you, all it takes is just a couple of bad marks. Thank you for taking the time to make this post.
I wasn’t aware that you could increase your credit score. This is definitely an area that I need to become more knowledgeable about. I know I have a low credit score and it is stopping me from being able to move ahead in various financial aspects, so I have to get this sorted out quick smart.
Thanks for the enlightening and interesting article. I stumbled on this just at the right time.
Steven, in response to your comment about raising your credit score, my husband and I found that the best way to do that was sign up for some low balance credit cards and you take the money you were going to use to buy groceries and put it away charge just that amount on the credit card then at the end of the month pay the credit card off with the money you set back. I realize that this takes discipline because you can’t go out and spend the money you set back but if you are serious about building your credit score it should prove easier than you think.
Your credit score will typically fluctuate according to your financial transactions. Your FICO (credit) score is made up of the following:-
your credit score will typically fluctuate according to your financial transactions. Your FICO (credit) score is made up of the following:-
- Your payment history = 35% (on time, late, etc.)
- The amount of outstanding debt you carry = 30% (revolving credit, such as credit cards, carry far more weight than instalment loans)
- The length of your credit history = 15% (this is generally based on the length of time since a credit account was opened…this is why it is generally not advisable to close old credit accounts that you no longer use, as this may have a detrimental effect on your credit score)
- Your NEW lines of credit = 10% (this will include the number of credit accounts you have recently opened, the number of credit enquiries you have recently made, how long since your last credit enquiry, and also the length of time since you last opened a credit account)
- The different types of credit you have = 10% (The more variety of “debt” you have, the better this is considered. i.e. it proves that you have the ability to handle numerous forms of credit)
In effect your credit score can change from day to day, however, the 3 different credit reporting agency can each carry a completely different score for you (although they are all likely to be fairly comparable to each other).
So, yes Experian, Equifax and TransUnion will know exactly when to change your credit score based on the above criteria.
Your credit score will typically fluctuate according to your financial transactions. Your FICO (credit) score is made up of the following:-
- Your payment history = 35% (on time, late, etc.)
- The amount of outstanding debt you carry = 30% (revolving credit, such as credit cards, carry far more weight than instalment loans)
- The length of your credit history = 15% (this is generally based on the length of time since a credit account was opened…this is why it is generally not advisable to close old credit accounts that you no longer use, as this may have a detrimental effect on your credit score)
- Your NEW lines of credit = 10% (this will include the number of credit accounts you have recently opened, the number of credit enquiries you have recently made, how long since your last credit enquiry, and also the length of time since you last opened a credit account)
- The different types of credit you have = 10% (The more variety of “debt” you have, the better this is considered. i.e. it proves that you have the ability to handle numerous forms of credit)
In effect your credit score can change from day to day, however, the 3 different credit reporting agency can each carry a completely different score for you (although they are all likely to be fairly comparable to each other).
So, yes Experian, Equifax and TransUnion will know exactly when to change your credit score based on the above criteria.
With the holiday shopping season right around the corner, it has got to be agonizing for those persons who are feeling the financial pinch of the recession and the stagnating job market. Those who are in major debt must feel like they are drowning. I was struggling for the past few years as a freelance designer until recently when things somehow picked up for me despite the economy. I am shocked, however, to see my brother struggling financially. He’s been out of a job and his export business is barely keeping him afloat. That has never happened to my brother. He has been the model for responsibility and stability throughout my life. I never thought I would see the day when I would be the one earning a steady income and him falling behind on his mortgage and most recently, a credit card payment. He had to notify me by email that some funds I deposited into the family business checking account are now on hold because he is waiting for a check to come in to defray the cost of one of his transactions. Well, I can’t complain. At least he is expecting a check and not having to file for bankruptcy. Good luck to all of you this holiday season.
What the article didn’t touch on was where does the fair Isaac Corporation originate from? What are its origins? Maybe they simply a corporation fortunate enough to land a government contract and thus, the seal of approval – the ringing endorsement from the Federal Trade Commission. If so, is that what distinguishes them from Equifax and / or other credit rating agencies? I know knowing won’t help mine or anyone else’s credit rating, but it sure would be nice to know. Where it may help though, could be in terms of overall awareness which could help those of us, like myself, who got a bad stain on the credit rating from a gym membership, before the class action lawsuit which changed the legislation which enabled gyms to coerce people into long term contracts. The laws no longer give gyms that sort of power, but that hasn’t changed the stain on my credit rating. And I want to know if it will help my case if I were to write to FICO directly.
I was told that having a debt on the Banking system check systems is one of the worse types of debts you can have, not only for your credit rating, but also because it hinders you, as it has for me, from opening any bank accounts, even if you try to open an account with another bank unaffiliated with the bank you owe a debt to. I am feeling the burden of a relatively small debt I have from a checking account in which I over drafted many years ago and never paid the debt. I haven’t had an account since. I ve been using a family checking account just until I get around to paying my small debt.
The opinion of a good credit score changes every day so how are you supposed to know if you have a good score or not? I think if you haven’t missed any payments or paid anything late then your credit score should be fine, if you have credit cards that you pay off every month then your credit score is probably great because that is one way to build you credit up. The information you have provided in your blog is very educational and you have made some really good points to follow as you build your credit as a young person. As my son is getting ready to start his life as an adult I have book marked this page to show him later so he is fully aware of what takes place. Your expert advice will help him a great deal.
Thank you for explaining what a good credit score is or a credit score at all. I am just now twenty one and don’t really have any credit to speak of so what is the best way to build credit? I was told that I need to get a credit card but frankly they scare me because I have seen so many people in my family fall to credit card debt that they can’t get out of, do you have any better advice? Your article was a very informative one and even for someone who is new to the game I understood it, thank you for making it so simple.
I see so many credit score tv commercials on many channels. And each time I see a new one, it seems to get more and more elaborate. Business must be booming for companies that provide various services related to credit scores or credit consolidation. I would like to see an Easy button that you can press to reset all of your credit. I guess that is what consolidation or bankruptcy is for, but both are a lengthy process.