What is a good credit score rating? It’s a natural question to ask given how important borrowing power is in today’s society, which in turn puts emphasis on having a good credit score. So what is a good credit rating? To answer this question we must consider a few other implications, so read on.
Before we can know what a good credit score rating is we have to understand what a credit score rating means. A credit score rating is a representation of your borrowing power and level of risk in terms of defaulting or not paying back the loan. Your credit score is a three digit number, and while there are different credit scores with different scales, in general the number ranges between 400 and 900. Your credit score rating is based on your credit history, which can be found in the credit reports compiled by the credit bureaus. The three major credit bureaus, TransUnion, Equifax and Experian, all compile their own credit report information, so credit reports and scores may vary.
Simply put, the higher your credit score, the better. A good credit score rating is one that classifies you as being in a lower risk group; that is to say, you are less likely to default on a loan. The score which represents the lowest percentage of defaulters is a rating of 740 or higher. This is a great score. Around 700 is still a very good score. Once you get into the low 600s and the 500s, you are entering high risk territory.
The main benefit to a good credit score is borrowing power. When you have a high credit score, you can borrow more money and pay lower interest rates. The high credit score indicates to the lender that there are likely to get their money back. If you have a score in the 500s, the lender knows he is much less likely to get his money back, so he will want to lend you less money and charge a higher interest rate to protect himself for the chance of default.
Default on a loan, make late payments, maxed out credit cards, these things all hurt your credit score rating. Another thing that can really hurt your score is identity theft. If people are taking out loans or credit cards in your name unbeknownst to you, your score may plummet without you even knowing it. Consider the benefits of credit monitoring to track your accounts and manage your credit profile.