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What is Considered a Good Credit Rating?

People whit a good credit rating receive more credit card offers.
Having many credit cards with high balances can hurt a person's credit rating.
Those with good credit may be able to get lower interest rates on credit cards.
Credit balances and borrowing history are included in a person's credit rating.
Paying bills on time is important to having a good credit rating.
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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 23 September 2014
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A good credit rating can be determined through a variety of factors. Your proven credit history, your current debt to income ratio, and your amount of bad debt (unsecured credit card debt, auto loans, etc.) can be compared to your amount of good debt (home loans). People with a good credit rating generally qualify for prime rates in loans, essentially the standard rate. People with an excellent credit rating can qualify for loans with a lower than prime interest rate.

Lenders may assess what constitutes a good credit rating differently. In fact, defining it is flexible to a degree and some lenders may be interested in specific aspects of your score, more than in other aspects. You can ask lenders what aspects of your credit score are most important.

Since flexibility in what is considered a good credit rating exists, you’ll get different answers from different people about what is a “good” or “optimal” score. Financial guru Suze Orman suggests that a really top notch rating must be at least a 720 Fair Isaac Company (FICO) score, a scoring method developed by the credit monitoring agency Experian. Orman has also stated, in a conflicting manner, that a score above 690 is good and generally required to get better loan rates.

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Actually, some agencies like Fannie Mae consider that 620 is good, and this number will likely get you a prime rate. On the other hand, some sources, like the PBS show Frontline have suggested that 770 is the optimal credit score. Most companies do say that you need at least 650-690 in order to have a good credit rating. An optimal credit rating is always considered over 700, and usually in the mid 700s.

Since there are numerous interpretations of what a good credit score can be, one of the things consumers should do is shop around, especially when their credit rating is floating in the top 600s. In some cases, this credit rating will qualify you for lower interest rates. Other banks and lenders are unimpressed by this score. If you have a good or better than good rating, it can really be a money saver to figure out which lenders are likely to offer you the best deals.

When you know you have a good credit rating, or you think you do, ask lenders what score they consider to be good. Virtually all lenders have a formula for calculating interest rates based on their definition of good and bad ratings. When you know what number each lender considers as a good, you can make decisions on the places to best apply for credit.

If your rating is below 600, you may be considered at risk as a borrower. Failing to have a good credit rating usually means paying higher interest rates. When you can, try to improve your credit rating by making payments on time, by paying off credit cards and by reducing your debt to income ratio. Also try to avoid accumulating more bad debt, as this may further decrease your credit rating. Applying for new credit, especially of the credit card variety, can also decrease a rating.

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suntan12
Post 3

SauteePan- I agree with you. The credit bureaus often look at one’s debt to income ratio in order to determine credit worthiness.

It is best to keep credit card balances low and make payments on time. Late payments not only hurt your credit rating, but it also changes the interest rate that your credit card company charges you. For example, if your current interest rate on a credit card is 12%, the interest rate can go up to 24% the next month, just for a single late payment.

Maintaining a good credit score is important because rebuilding your credit is very difficult and takes many years.

Many people with bad credit have to apply for prepaid credit cards and slowly build their credit over time. Trying to rent an apartment is very difficult as well.

SauteePan
Post 2

Elsewhen- I did not know that. I just wanted to add that many lenders often require excellent credit for the best interest rates. Those falling into a score of at 740 are offered preferred rates on all forms of credit. Those are usually the teaser rates that banks advertise for loans.

Improving one’s credit rating is essential because everyone needs credit. Paying credit card balances off from smallest to largest balances and only using them for emergencies is a start to achieving a higher credit score. Financial guru Dave Ramsey calls this the “Debt Snowball”.

elsewhen
Post 1

the vantage score is a new type of credit score that is being managed by the credit bureaus themselves. fico scores will probably still be used, but if the credit agencies have their way, the vantage score will begin to make headway.

since it has a different algorithm, consumers might have to keep track of two different scores.

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