A good credit score is important for favorable credit or loan terms. FICO is the main credit scoring repository, collecting and evaluating credit and loan information. FICO credit scores range from 300 to 850, with scores above 720 considered good. Credit scores are based on payment history, amount owed, credit history duration, new credit, and types of credit used. Lenders evaluate credit scores to determine interest rates and credit limits. A good credit score can result in more favorable insurance premiums.
A good credit score is vital in securing any type of favorable credit or loan terms. Credit scores are a reflection of financial relationships with lenders and/or creditors; a good credit score, therefore, will not only secure you substantial savings on interest rates, but will also speed up the loan or credit approval process. Poor credit, on the other hand, will often result in you paying higher rates for smaller credit or loan amounts and, quite often, being denied credit or a loan outright.
The main credit scoring repository 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 largest credit bureaus, Experion, TransUnion and Equifax, and disseminates that information to banks, lenders and credit card companies. FICO also provides credit scores to individual consumers who wish to track their credit information as a regular financial maintenance tool or for the purpose of determining whether they have a good credit score when applying for credit or a loan. A FICO credit score will range from as low as 300 to as high as 850. The lower number will indicate very poor credit and higher risk to lenders and lenders, 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 rating of 600 or below is considered poor.
FICO score assessments are based on five basic criteria. (1) Your payment history accounts for 35% of your total score. (2) The amount of money owed is 30%. (3) The duration of the credit history is equal to 15% of the total. (4) New credit (10%) and (5) types of credit used (10%) complete the total credit score.
Lenders constantly evaluate credit scores when deciding on a change in interest rates or credit card limits for specific customers or to offer favorable rates to a prospective customer with a good credit score. Potential borrowers can raise a bad credit score through establishing a credit history and timely repayment of debt. Conversely, borrowers can lower a good credit score if they miss scheduled payments or default on a loan. A good credit score could also result in more favorable insurance premiums for items like automobile and homeowners insurance.
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