What Defines a Good Credit Score?

A credit score is a very important number that affects many aspects of your life. It determines whether you can borrow money and the interest rate you will pay. A low score can make it impossible to buy a house or a car, get a credit card or sign a cell phone contract. It can even keep you from landing your dream job. A good credit score, on the other hand, can make your life easier.

What Is a Credit Score?

A credit score is a three-digit number between 300 and 800. It tells lenders whether or not you are a safe bet. The lower the credit score, the more risky the customer. The score is a summary of the past seven years of your credit history. Lenders don't have time to read through the entire credit report. The score is useful shorthand that saves them having to decipher every line of the credit report.

Calculating the Score

Credit bureaus use complex, secret formulas to calculate your credit score. Each bureau uses a different formula to produce a slightly different score. They also have slightly different information to work with. Not every lender reports to all three bureaus. Still, if you have a low TransUnion score, it's unlikely that your Equifax and Experian scores will be significantly higher. All credit scores take into account your repayment history, your total debt, the length of your credit history and new credit applications, but they weight the information slightly differently.

Good Credit Scores

Different credit bureaus have slightly different ranges for their credit scores. Most people's scores fall between 600 and 700. In general, a score of 700 and above is considered to be good. People with these scores are considered low-risk, therefore, they get better interest rates. A score below 600 indicates a high risk. If your score is below 500, you will have a hard time borrowing money, whether it's a mortgage, a credit card or a loan.

Finding Out You Score

The easiest way to get your credit scores is directly from the credit bureaus. You can request the score by going to their websites. You will have to pay a fee each time. Alternatively, you can sign up for their credit monitoring services, which allow you to check your score any time. If you are in the process of applying for a mortgage, you can also get the score from the lender. The lender will be checking your score when deciding whether or not to lend you the money.

Raising the Score

The easiest and quickest way to raise your credit score is to fix mistakes on your credit report. You can get a copy of the report free of charge from AnnualCreditReport.com. If you see a mistake on the report, such as a loan you don't recognize or a debt that you've paid off, file a dispute on the credit bureau's website. The bureau will investigate and correct any wrong information. Depending on the severity of the mistake, this can significantly raise your score. You can also raise your score by paying off some debt and making monthly repayments on time.