It seems like a simple question at first. What is a good credit score? But what may seem simple at first, turns out to have a few complications. Some regard anything over 650 to be a quality score while others contend that 725 is where a good credit score begins. Truth be told, there is no authority that defines a credit score as “good.”
Generally, a good credit score is anything 700 or above. Generally, that number will get you approved for most of the credit you need. You may not see the best interest rate possible, but you’re still able to obtain the most loans at a competitive rate. To break down the ‘good credit score’ table even further, this is how I would classify the range of all credit scores.
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Rating Credit Score Range
Excellent 750 - 850
Good 700 - 749
Fair 625 - 699
Poor 550 - 624
Bad 300 - 549
Having a good credit score is more than just an ego boost, it’s also an extreme money saving technique. Unless you have the resources to make large purchases with cash, obtaining credit for things like your first home or automobile can be a stressful process. The importance of maintaining an excellent credit score so that when the times comes to use it, you have it, is immense. The difference in interest rate may not jump out at you but the difference in total cost between FICO credit scores is astounding. Looking at current mortgage rates, let’s see how the varying FICO credit scores stack up when applying for a 30-year fixed mortgage of $300,000.
FICO Credit Score Mortgage APR Monthly Payment
760 - 850 4.280% $1,481
700 - 759 4.502% $1,520
680 - 699 4.679% $1,552
660 - 679 4.893% $1,591
640 - 659 5.323% $1,670
620 - 639 5.869% $1,773
You can see right away that the difference in monthly payments from the best and worst credit score is $292 and when you make a total of 360 payments towards a mortgage, that money adds up real fast. $105,000 is the difference between an excellent credit score and a fair one when applying for a $300,000 home loan. And that’s just in a home loan!
When you factor in the money you can save with credit card payments, auto loans and other types of credit, there are literally hundreds of thousands of reasons to keep an excellent credit score. Of course, maintaining an excellent credit score is easier said than done. Graduating from college with a heap of personal loan debt, I was forced to put aside my aspirations of a home until I could control my debt. My current 500 credit score has made it all but impossible to be approved for a home loan, credit card or anything else really but I have taken steps in the last 12 months that have actually brought my credit score up from 450!
- Paying Everyone on Time – Sadly, I had to pick and choose the creditors I could afford to pay on time. After implementing a tight budget and finding a new job that paid me just a small amount more, I am finally able to pay all of my bills on time. Right now, that means not saving any money for the future or having spending money but as things gradually improve, I’ll think about setting some money aside.
- Stop Applying For Credit – For some strange reason, I would go on credit binges, looking for ways to take out a quick credit card or loan simply to pay my other bills. Finally, I realized that taking out a loan simply to pay another (with a lower interest rate to boot) was flat out stupid. Not only did I increase my debtor amounts but I hurt my credit score with so many inquiries, many of which I was declined for. In the last 12 months, I have only applied for credit once and wouldn’t you know it, I was still declined.
- Negotiated With Collectors – Last but not least, I made the effort to reach out to by debtors that had filled for collection against me. Many would simply avoid these people but I decided to take charge and finish these phone calls once and for all. Many don’t realize this but consumers have the edge when dealing with collection agencies. If you’re a good negotiator, you can pay 50% of your debt (or sometimes even less) and have the entire debt removed. This won’t help your credit score in the immediate future but in seven years, the infraction will disappear.
If you currently don’t know what your FICO credit score is, you need to find out ASAP and start working toward a better one. Credit scores make all the difference in first getting approved for credit, second, determining how much credit you are eligible to receive and finally just how much you’ll have to pay back.
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