What Credit Score Is Considered Good Credit?

Today, credit scores are used by potential employers, landlords, insurance companies, banks, mobile phone companies and other entities that may wish to extend goods or services on credit. Having a good credit score can be the difference between landing a dream job or getting a new apartment...or not.

What is a Good Credit Score?

In 2010, a 720 score is considered the minimum threshold for good credit. That's about 100 points higher than before the housing market crashed and the current recession began in 2008. The median credit score for all consumers is 725, although the gap between the percentage of consumers holding scores below 600 and those with scores over 800 is getting wider.

For home mortgages, however, it seems that a score of 740 is now the minimum needed to avoid a higher loan interest rate, according to Rodney Anderson, a Texas-based mortgage lender.

Where Does Your Credit Score Come From?

The credit score was crafted in 1989 as part of a joint project between Equifax, one of the three major credit reporting bureaus, and the Fair Issac Corp., a global financial services firm. The original purpose of establishing credit scores was to predict the likelihood of a person repaying his debt on time. Credit scores may range from 300 to 850. They paint a picture of a person's creditworthiness at a specific point in time.

Also known as the FICO score, a credit score not only dictates whether a borrower gets credit, but also determines the cost of that credit. Holders of low credit scores, if deemed creditworthy, likely have to pay higher interest rates on loans or higher insurance premiums.

Factors Affecting Your Credit Score

The credit score is calculated using an algorithm owned by the Fair Issac Corp. The credit bureaus do not store credit scores, but rather, calculate it when the score is requested based on a number of factors: the types and amounts of credit held; the person's payment history; the amount of outstanding debt; the length of the person's credit history; and how frequently and how recently the person has taken on new debt.

What Does Your Credit Score Mean?

Holders of credit scores at the upper echelon of 720 or higher may see increasing competition--in the form of more credit card offers--for their business.

Those with credit scores beneath 700, in the midst of today's recession, will find it increasingly difficult to obtain credit. Scores between 620 and 700 are now considered marginal and anything below 600 is seen as a poor risk.

What You Can Do About a Bad Credit Score

Nothing but time and attention to the good money management practices as well as to one's credit report will affect a change in one's credit score. Negative, but accurate, information cannot be removed legally.

Americans are entitled to a free copy once a year or when credit has been denied in the past 30 days, from any of the three major credit reporting agencies: Experian, Equifax and TransUnion--one from each a year.

To raise one's credit score, one must: pay bills on time; pay down debt; minimize new credit; and demonstrate the ability to make purchases and pay them off promptly.