What exactly is a good credit score anyway? The answer to both questions isn’t particularly satisfying: it depends. There’s no single carved-in-granite “good” score and there are many factors that determine credit worthiness.
You Don’t Have Just One Score
One factor is that you don’t actually have one credit score. There are many different credit scores that may be used when determining credit worthiness. Each bureau calculates scores for you based on information that’s been reported to them by your creditors. If one of your creditors reports your financial activity to two bureaus but not the third, your scores may vary.
Wait, there’s more. All three bureaus may not use the same scoring model or equation to come up with your scores, and all lenders may not use the same score or factors to determine your creditworthiness. While it may seem unfair for individuals to be scored by a general model, the models were actually established to process reports more quickly and avoid human error.
While there are many models used to determine a person’s credit worthiness, they generally follow either a statistical or judgmental model. A statistical model assesses multiple factors from different reporting agencies, correlates them and assigns weights to each factor. A judgmental scoring model takes financial statements, individual judgments and experiences of credit officials into account.
With so many factors weighing in on your score, may be wondering — is my credit score arbitrary? The answer is no, thanks to the federal Fair Credit Reporting Act and the Equal Credit Opportunity Act, which protect against discriminatory or subjective credit analysis.
Scores by the Numbers
Technically, a credit score of 850 using TU Score is “excellent”. As a practical matter, however, a small percentage of consumers share this lofty achievement. So what does your score have to be to be considered “good?” You’d need a TU Score in the range of 700 to 749 to fall into the “good” category. A score of 658 to 719 puts you somewhere in the middle of the consumer pack.
Why Are You Borrowing?
Another factor that should be taken into consideration is each lender’s perception of “good.” One lender might be comfortable with a score of 700. Another might want something more. The disparity can become pretty significant with different types of loans. Mortgage lenders generally may impose two scales: one for qualifying for the loan itself and one for qualifying for the best interest rate. While many factors in addition to your credit scores may be considered when seeking an auto loan.
Maintaining Good Credit Habits
Achieving and maintaining good credit health can be a little like aiming at a moving target, but no worries, because good credit habits can help. If you consistently implement these strategies, you’ll have a better chance of hitting a bullseye.
Make a payment each month. Making only minimum payments on credit cards isn’t ideal, but it’s far better than making no payment at all. If you find yourself in a position where you simply can’t make a car payment or a minimum payment on a card by the due date, send the payment as soon as you possibly can. Generally, there’s typically no penalty to your credit score if you come up with the payment in less than 30 days.
Don’t max out your credit cards. Instead, keep your balances low and utilize your card frequently. Use the credit utilization ratio, the ratio of your credit card balances to credit limits, to monitor your balance and card usage. Most creditors view a ratio of 35% and lower healthy — so if you have a $1000 credit limit, keep your balance below $350. In general, keeping a low balance or paying off your credit card each month is ideal. However, paying your credit cards off and letting them sit idle isn’t to your benefit. If your cards have no activity, lenders may not have anything to report to the credit agencies. Be patient and realistic. You may not see an impact immediately. Keep tabs on your scores and check your credit report regularly to make sure everything that’s contributing to your score is accurate.