What is a good credit score?

Often you do not look for information about a matter until you expressly need to. Most people who live a regular life, would not bother to know what is a good credit score until they experience some problem in regard to it.

But when you apply for a mortgage and your application is rejected you are bound to look into the reasons for its rejection. One of the most important reasons would be your credit history or credit rating. If you find yourself in this situation you would definitely want to learn about it in a hurry!

There are a few terms that you need to be familiar with when you are deciding on "what is a good credit score."

The first term would be "FICO" or "Fair Isaac Corporation." This is a California based organization which has worked out a system using a number of parameters, to define an individual credit score.

There are two other models used for this purpose, and these are the Empirica Scoring Model and the Beacon Scoring Model. Each one of these models will give a different score in terms of the total number; however, the interpretation of these numbers would be similar. Of late there is a fourth model making an entrance into the market, the Vantage Score Model which is accepted by all the three major credit bureaus, Experian, Trans Union and Equifax.

All this information would prompt you to ask "what is a good credit score number?" According to FICO your number should be above 700, though the majority of good credit scoring Americans would fall into the bracket of 600-700 score. For "no questions asked" loans or mortgages your score should read about 720.

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According to the latest model, the Vantage, a good score would be 750-850. Studies of the credit of the overall USA population says that about 45 per cent of the total population enjoys a score of 700-800, while only 13 per cent stay in the above 800 bracket. Accordingly, about 27 per cent would have a score of 600-700.

While calculating what is a good credit score, there are a number of factors taken into consideration:

(1) payment history, which generally accounts for 35 per cent of the total score
(2) Outstanding debts and credit available to you, which represents 30 per cent of the score
(3) tenure of your credit history, which account for 15 per cent of the score
(4) opening new credit accounts, which give 10 per cent of the score; and
(5) total number of credit accounts you are using presently accounts for the last 10 per cent.

Understanding what is a good credit score is not a terribly difficult task. But remember that your credit score (and credit report) is going to vary according to which credit bureau is reporting it.

Normally, your score is defined by your ability to manage credit. Therefore, having credit accounts which are managed well, keeping the debt amounts within one third of your income, and length of your credit history are all factors that show in black and white, whether or not you follow the right financial principles in your life.

Based on that assumption, the credit providers would judge you either as good investment or as a risk while processing your loan application.

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