Why is a Good Credit Score Necessary?
A credit score is a three digit number calculated from your credit report and is used to determine your creditworthiness. A good credit score is crucial for financial independence and success. Not only can it make a difference between whether you are approved or denied for a loan, but it has a huge impact on how much interest rate you will be charged if you are approved. This can mean saving tens of thousands of dollars throughout your lifetime if you have a good credit score!
What is a Considered a Good Credit Score?
Thus, one common question many people have about credit scoring is what lenders consider as a “good” credit score. Although the higher your credit score is, the better, there is no single cutoff. What is considered a “good” credit score depends on the scoring system used by each lender. The lender makes its own decision about where to draw the line, based on how much risk it wants to take.
FICO scores range from a low of 300 to a high of 850. Instead of having a cutoff to approve or deny credit, lenders will have different rates and terms at different segments. Many lenders use scores above 700 as the cutoff for giving borrowers their lowest rates, and others may even use scores above 660. These scores typically suggest that you have good credit management, giving you the ability to negotiate for the best rates. Companies that lend borrowers money below that cutoff are often known as “subprime” lenders.
Since all the lenders can have different standards on what they consider to be a good credit score, it is important to keep building your score to receive the lowest interest rates. Understand the factors that affect your credit score and work to maintain a high credit score. You can check your credit score at MyFico.com.