What Is Considered A Good Credit Score And A Bad One?

Times are hard, and lenders are tightening policies. If you haven't needed new credit yet and up until now had no reason to closely monitor your credit score, we suggest that now is the time to do so. You'll never know when you might need the extra money, and if and when you do, you'll find that a good credit score will come in very handy.

One thing remains constant in this turbulent financial economy – good credit score holders will always get the best repayment terms. This means lower interest rates, longer payment terms, unsolicited credit card offers, etc. Low credit score holders, on the other hand, will have to deal with higher interest rates and shorter repayment terms. To be able to tell what is considered a good credit score, let's take a look at what credit bureaus consider when computing for your score.

Your credit score is computed on the basis of five factors in your credit report:

Payment history – This accounts for 35 percent of your credit score, and is the most important factor. Lenders will favor borrowers who have shown a consistent pattern of timely payments. What is a good credit score – always make sure you pay on or before your due date.

Balances – Accounting for 30 percent of your credit score, this factor looks at how much of your credit limit you have used. The less available credit you have on your accounts, the more it shows you can't manage your money very well. What is a good credit score – don't max out your cards, and strive to pay the balance due in full.

Credit history – The longer you've had and managed your credit accounts, the better it is for your score. This accounts for fifteen percent, and it is usually easier to get additional credit if you have a long history of credit use. What is a good credit score – Don't close your credit cards even if you don't use them.

New credit – Lenders don't usually like new credit applications, and this tends to lower your score. New credit applications account for ten percent of your score. One major exception that lenders will allow is when you shop around for the best interest rate on a loan on a focused period of one to two weeks. What is a good credit score – When shopping for a loan, limit your rate shopping to a maximum of two weeks.

Types of credit used – A good mix of credit types is important. It is all right to have a mortgage, an installment loan and a few revolving accounts such as credit cards. Too many of one type, such as having too many credit cards, is not considered a favorable sign. What is a good credit score – Don't open new revolving accounts or apply for loans if you don't need them.

By being careful about how you manage your credit accounts and not delaying on your payments, you'll find that you will eventually be able to work towards what is considered a good credit score. You'll find more tips on credit scores and what is considered as a good one on our website, where you can find advice on credit report and credit score and how to avoid scam.

By: mrcredit101

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Jeremy Englewood is a credit manager and writer whose practical advice on personal finance topics have provided inspiration and help for people who want to repair their credit. Read more about what a good credit score is at HowToEstablishGoodCredit.com.