Credit Scores and You - What Is A Good Credit Score?

By Christine A. Mathews

If you're thinking about applying for credit, it's always a good idea to find out what your current credit score is ahead of time. It will be one of the first things your lender looks at when reviewing your application. And it could well be a determining factor in how quickly your loan is approved. Knowing what your credit score is before you apply will help eliminate any surprises along the way.

In case you don't already know what a credit score is, let me explain...

This is a number that's calculated by the credit bureaus to show how credit-worthy you are. It's based on your past credit history, as well as any current credit accounts you may have.

The three major credit bureaus are Experian, Equifax, and Trans Union. Each one has it's own method of deciding what your credit score is. Then they use a scoring system to show how good you are at handling credit and paying your bills on time. They all use the same scoring system - FICO - which is an acronym for Fair Isaac Corporation. That's why many people will use the terms "credit score" and "FICO score" interchangeably.

Lenders don't always check all three credit bureaus to decide whether or not to offer you credit. But since Equifax, Experian and Trans Union all use the same FICO scoring system, a score of 720 from one is considered equal to a score of 720 from the other two. That said, it's always wise for you to check your credit report directly from each credit bureau. Mistakes are possible, and you'll want to correct them as soon as possible.

Credit Score Ranges - What Is Considered A "Good" Credit Score?

FICO scores range from 375 to 900 points. A higher score is typically considered a better risk. So the higher your credit score is, the easier it will be for you to get credit and the better the terms will be.

You should understand that each lender will have their own underwriting guidelines and cutoff points they have to follow. But here is a general guideline you can use to see where your credit score falls overall.

If your credit score is 650 and above, this usually indicates very good credit history. This means you will probably find getting credit approval is quick and easy. Another bonus for having very good credit is that the terms of your loan will likely be very good, too.

If your score is between 620 and 650, you are considered to have generally good credit. That said, your lender may ask for additional documentation or explanations before approving large loans or extending a high credit limit. They are simply doing their due diligence, looking for any possible credit risks before final approval.

You may also find that your loan will take longer to finalize. Even so, chances are good that you are able to get approval at a good credit rate.

Don't panic if your credit falls below 620. It doesn't mean you will never get credit. The right lender may still be willing to give you a loan, but you need to accept that your interest rate will likely by higher and terms won't be as good.