A good credit score is important for favorable credit or loan terms, with FICO being the main credit score repository. Scores range from 300 to 850, with scores above 720 considered good. Payment history, amount owed, credit history duration, new credit, and types of credit used make up the score. Lenders use credit scores to determine interest rates and credit limits, while borrowers can improve their score by timely repayment of debt.
A good credit score is vital to securing any type of favorable credit or loan terms. Credit scores are a reflection of financial dealings with lenders and/or lenders; a good credit score, therefore, will not only guarantee considerable savings on interest rates, but will also speed up the loan or credit approval process. On the other hand, poor credit often results in higher rates being paid for smaller credit or loan amounts, and often times, credit or loan denial altogether.
The main repository of credit scores is the Fair Issac Corporation (FICO), which developed the most widely used credit rating system. FICO collects and evaluates credit and loan information from the three major credit bureaus, Experion, TransUnion and Equifax, and discloses this information to banks, lenders and credit card companies. FICO also provides credit scores to individual consumers who want to track their credit information as a regular financial maintenance tool or for purposes of determining whether they have a good credit score when applying for credit or a loan. A FICO credit score ranges from 300 to 850. The lower number indicates very poor credit and a greater risk to lenders and creditors, while the higher number represents essentially perfect credit. Credit scores above 600 are generally considered worthy of reasonably favorable credit terms. A score above 720 is considered a good credit score, while a credit score of 600 or less is considered poor.
FICO score assessments are based on five basic criteria. (1) Payment history accounts for 35% of the total score. (2) The amount of money owed counts as 30%. (3) The duration of the credit history counts as 15% of the total. (4) New Credit (10%) and (5) Types of Credit Used (10%) complete the total credit score.
Lenders are constantly evaluating credit scores to decide on a change in interest rates or credit card limits for specific customers, or to offer favorable rates to a potential customer with a good credit score. Prospective borrowers can boost a low credit score by opening up a credit history and timely repayment of debt. On the other hand, borrowers can lower a good credit score if they miss scheduled payments or default on a loan. A good credit score can also determine more favorable insurance premiums for things like auto and homeowners insurance.
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