What is a Good Credit Score?

An established credit history and credit score often stands between potential home or car buyers and their dream. But what is a good credit score? What exactly is a credit score? What makes a credit score “good?” How to improve your credit score? If you’re new to building credit there are a few things you need to know in order to keep your credit looking stellar.

What is a credit score?
Your credit score is a numerical representation of your credit report. This three-digit number is like a badge that predicts risk, credit responsibility and determines your interest rates if you borrow money from lenders much like your CLUE Report. While you will be able to get a copy of your credit report you may not find this numerical key listed. Think of your credit score like the cliff notes version of your credit report. There are a few different measures of credit scores between divisions. Based on their own systems different scorers might view certain numbers in many ways.

what is a good credit score

what is a good credit score

Deciphering your three-digit credit score is quite easy if you know the levels. The range usually runs from 300-850. Good to excellent credit is considered anything from 700 to 850. If your credit score falls in this range you’re going great! Fair credit runs from 625-699, poor runs from 550-624, and anything below 550 is bad. Some finance experts would classify anything over 720 a good credit rating. Experts will disagree depending on their preferred credit rating systems, and in most cases the criteria you use to determine whether or not your credit score is good will not be far off.

What Does a Good Credit Score Mean?
Having a good credit score is great, but if you don’t know how to use it you could be missing out on some crucial credit building. Credit scores are used in varying ways by lenders and banks. One thing your credit score implies is how likely you are to pay back debt. Basically it announces how reliable you are as a borrower. People with good credit scores are more likely to pay back funds that they borrow while those with lower scores aren’t so reliable. Lenders like reliable borrowers, and good credit points them out.

But a credit score does much more than predict whether or not you’ll pay a loan back. When it comes to buying a house or car, there is an interest charge. Higher credit scores usually have a lower interest rate than those with bad to fair credit. Lenders not only base whether or not they’ll approve a loan by your credit score, but also how much interest to charge. If your credit is in good standing your interest rate won’t be as high as someone with bad credit. Your credit score saves you money with lower interest rates.

How is a Credit Score Calculated?
In order to build and maintain good credit you must first know how your score is determined. Once you know what goes into a credit score you can begin building your credit or nursing your score towards higher digits. Credit scores are based on your financial history only, and laws prevent your score being affected by things like race, gender, age and where you live. What is included are items such as your payment history, your current credit debts, age of your credit history, new credit items added to your accounts and types of credit used.

These five basic areas are where the bulk of your credit score is formed. All criteria have varying degrees of involvement in your score. For example:

  • Payment history (35%) – How many on-time payments you’ve made, missed, defaulted and past due items
  • Current amount owed (30%) – How much you currently owe – if you owe a large amount this could negatively affect your score
  • Age of credit history (15%) – The average length of your credit accounts and time since last activity
  • New credit (10%) – The number of new credit items on your accounts
  • Types of credit (10%) – The kinds of credit accounts are you currently maintain

How to Improve Your Credit Score?
Many people avoid credit based on all the negatives they’ve heard against it, but neglecting your credit score hurts your chances of being able to make major purchases in the future. The best way to build credit is to use credit, and forming the following good credit habits early will pull your low score to higher ground.

  • Pay bills on time – This is the easiest and best way to boost your credit score. Since the bulk of your credit score comes from your payment history, paying bills on time will pull you up quickly. Not only will that help, but a recent and consistent history of paying bills on time overshadow a period long in the past where you may have missed payments.
  • Budget – Setting up a budget and staying within its parameters will keep you from overspending and using credit for frivolous things. Although using credit builds credit not being able to pay it off hurts more in the future.
  • Use all your credit cards regularly – If you have a few credit cards try to use them from time to time in order to show that you use all of your accounts. Remember that the last usage of an account is 15% of your score.

If you want to start repairing a bad credit history or start building yours, find out what your credit score is. I use Credit Karma to check mine, you can check out my review of Credit Karma or if want just apply here – www.creditkarma.com.

Making your way to a good credit score and keeping your score high won’t be a financial nightmare when you know how to build it and what it means financially.

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Filed Under: DebtPersonal Finance


About the Author: KC Beavers is a semi-retired entrepreneur. The subject of personal finance has always fascinated him. In an effort to not bore those around him with all his love of personal finance as much he has come here to bore all of you instead. Be sure to follow KC on Twitter or Google+.


I just got my credit report and noticed a mistake on it that said I owed money on a past due account. I immediately called up the company and proved to them that the past due was incorrectly assigned to me, I never even opened and account. They checked their records and saw I was right and immediately erased the whole thing. I also challenged it on my credit report so it will disappear. My point is that in todays world our credit score is so important we need to pay attention to it all the time not only when we want to buy something. I got nothing in the mail about this and I never would have known had I not got my credit report.


Useful information for sure.. A good credit score can give loans and other bank benefits.. while a bad one can ruin finances. 

Good definition in short way


Yay I'm doing well with my current score!  But I'll have to start using a couple cards I haven't touched in a little while; didn't realize that time dormant had such a big impact on that number!


When we bought our house in December 2012 we found out our credit scores. They are very good. Credit scores don't matter so much in day-to-day life, but having a good one will serve everyone well in the future.


Good post!  Getting my credit score has been on my to-do list for a while but I haven't gotten around to it.... Brian got his a few years ago, and everything was good.  A few weird typos, but no alarm bells.


A great credit score can make a world of difference in everything from getting a home, a job, the best interest rates, and others.  I didn't understand until later how important those numbers were.  I really missed up when I was younger but have since gotten back on track doing the things you mentioned like paying bills on time as well as having a good mixture of revolving and installment accounts.


Good post KC!  Many don't realize how important this three digit number is and how much money it can save you!  I I learned its potential when re-financing my home.  Never paid ridiculous closing costs and always got the advertised rate, all thanks to a good credit score.


This is a great overview.  My wife and I both have really good credit scores, but we haven't really done anything special.  We each have credit cards that we both pay off at the end of each month.  You don't need to pay a lot in interest in order to build your credit score.

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