What Are the Benefits of a Good Credit Score?

Your credit history is shaped by a number of factors, such as how much of your available credit you use, whether you make payments on time and whether you've been through a bankruptcy or a foreclosure. Rather than analyze every wrinkle of your credit, lenders may look up your credit score, which combines all the details of your history into a single number.

Formula

The Fair Isaac Corporation developed the concept of credit scoring and the software and systems to do it, which is why your score is often called a "FICO" score. While FICO doesn't divulge its exact credit-score formula, it does identify the key elements of your score: 35 percent payment history, 30 percent the amount owed, 15 percent length of credit history, 10 percent new credit and 10 percent the type of credit used. The formula may be adjusted in certain situations, for example if you've only started using credit recently.

Benefits

Having a good credit score indicates you're a good credit risk. That means it's safer for lenders offer you more credit, such as a mortgage or a new credit card, at a low rate of interest. If you have excellent, credit and you qualify for Federal Housing Administration mortgage insurance, you may be able to buy a house with only a 3.5 percent down payment. Another advantage, FICO states, is that your score reflects your overall credit history: It averages good reports and bad rather than letting a few bad mistakes blacklist you.

Numbers

If you have a score above 760, Dana Wood says on the Real Estate News website, you're in very good shape: If you're mortgage shopping, for instance, you can expect multiple offers with good terms from lenders. If your score ranks below 620, you're considered sub-prime; you'll have higher interest rates and less room to negotiate. The range between 620 and 760 is the domain of the average borrower. You might think that higher is always better, but if you're already above 760, you're unlikely to get a better deal even if you push into the 800s.

Information

You can order a free report from each of the three main credit bureaus -- Equifax, Experian and TransUnion -- once a year from the Annual Credit Report website (see Resources). You can also obtain your credit score through the website, but you'll have to pay for it. The bureaus also offer their own proprietary scores to lenders, using their own systems, so it's possible that the credit score your lender orders won't be exactly the same as the one you get.