Credit scores help lenders, employers and landlords quickly assess if you are a good credit risk and can keep your financial affairs in order. Credit-scoring companies use information from your credit reports to determine your score, and each has different criteria for its calculation. However it is calculated, a good credit score is always the product of long-term, responsible use of credit.
A Good Credit Score
A "good" credit score depends on both the credit-scoring system, as well as the criteria set by individual credit grantors. In the FICO credit-scoring system, scores above 700 are generally considered to be good, with scores over 720 very good, according to Elizabeth Razzi for the Kiplinger website. The VantageScore system is different, with scores between 800 and 899 rated as "B" credit and scores over 900 as "A" credit, according to the Experian website.
Credit card companies, mortgage lenders, banks or landlords may have their own standards for what a "good" credit score is, so the FICO and VantageScore measurements are simply guidelines. If you are concerned about whether or not your credit score is high enough for a particular lender, ask about which credit criteria they use.
Keeping Low Balances
Just because you have a high credit limit doesn't mean you should use all of it. Credit-scoring systems consider your balances and can lower your score if you are too close to your limits. It doesn't matter that you make your monthly payments on time, credit-scoring companies evaluate your use of credit separately from your payment history. You protect your credit score by keeping your balances under 30 percent of your available credit. In the FICO system, your use of available credit makes up about 30 percent of your score, while the VantageScore treats how much of your credit you use and your balances as two separate factors, totaling 32 percent of your score.
Using Credit for Awhile
The longer your credit history, the better. While there are horror stories about college students getting into debt because of student credit card programs, it's actually a good idea to start using credit early. Responsible credit use in college can make it easier for a person to get a mortgage or automobile financing later.
Making Payments on Time
Making credit card payments on time is crucial to developing a good credit score. It's also good for your overall financial health. Late payments can cost you in credit card fees. In addition, if other creditors observe late payments on your credit report, they may raise your interest rate or lower the limits on your accounts. FICO bases a full 35 percent of your score on your making regular, on-time payments, while the VantageScore system counts your payment history as 28 percent of your score.
Variety of Credit Types
A mix of different credit types can improve your credit score. For example, it's a good thing if you can show responsible payment records on credit cards, personal loans and your mortgage. When you have more than one type of debt, you demonstrate to other lenders that you can manage different financial obligations.
Controlling Credit Requests
Asking for credit can lower your credit score, so be careful about opening new accounts. Credit score companies perceive new inquiries as the potential for your taking on more debt, so your credit score can suffer when you apply for a new card. Be careful when applying for an apartment, a car loan or even a bank account. Credit checks can cost a few points off your score.
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