What Is a Decent Credit Score?

Credit reporting agencies calculate your credit score based on your financial history. Lenders, banks, insurance companies and some employers use this score to determine risk factors and responsibility. A decent credit score is a significant factor in determining loan approval and favorable loan terms. While your credit score may differ among the three major credit-reporting agencies, most lenders in the United States use the Fair Isaac Corporation FICO scoring system.

Facts

FICO credit scores range from 300 to 850. While lenders look at more than just your credit score to determine lending, Experian --- one of the three major credit reporting agencies --- suggests that scores above 700 reflect good consumer money management. FICO recommends a score of 720 or better for favorable loan rates. Banks, credit card issuers and other lenders establish individual "cut-off" scores when determining loan approval and rates.

Effects

The higher the credit score, the more apt a lender is to approve a loan and offer lower interest rates. High interest rates increase your total debt over time. For example, the MyFICO website suggests that an individual with a credit score of 720 may save up to $165,000 over the course of a $150,000, 30-year loan over a person with a credit score of 550 for the same loan amount. A decent credit score offers you leverage when shopping for loans and negotiating with creditors.

Score Calculations

Your payment history accounts for 35 percent of your credit score. Amounts owed account for 30 percent of your score, and length of credit history, new credit and types of credit supply account for the remainder. Most negative information remains on your credit report for seven years, although bankruptcies may stay for up to 10 years. Positive account information remains on your credit report until you close the account. Credit inquiries from potential lenders appear on your report for two years, but inquiries from current lenders have no affect on your score.

Raising Your Score

Paying your bills on time helps your credit situation the most. Your payment history not only accounts for most of your credit score, it aids lenders in determining your financial responsibility. Keep balances low to improve your score and show creditors that you don't have difficulty paying debt. Avoid applying for or opening numerous accounts in a short period, as this may indicate financial hardship. Acquire a mix of credit types, including secured and unsecured loans, to indicate experience and responsibility with different types of loans.

Considerations

Check your credit report regularly for errors. You can obtain a free copy of your credit reports once every 12 months through the AnnualCreditReport.com website. While errors such as misspelling or simple clerical mistakes may not impact on your score, multiple reports for the same loan, paid loans not reported as satisfied and fraudulent charges can hurt your credit score. If you find inaccurate information, contact the applicable credit-reporting agency to have it corrected.