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Credit Scores - What is Good, What is Not?
What is a good score? Unfortunately, there is no one answer to this question. The simple answer is: it depends.
We all know that the higher the score, the better. After that it gets a little more complicated. Each creditor makes its own determination of credit scores and what is acceptable - and what is not. They make these decisions based on the level of risk they feel they are taking when they issue that particular type of credit to a particular range of credit scores. Based on their experience with these factors, they make their own decision as to what is good for them or bad for them. What is good for lender X may be considered bad for lender Y.
Additionally, the type of credit being applied for can help determine what a good or bad score is. For example, a credit card issuer may consider a 600 score good for their customers, while that same score may be considered to be poor by a mortgage lender.
FICO scores range from a low of 300 to a high of 850. It is rare to see a score under 400 or over 800. In 2008, the average US adult's FICO score was 679. This score is 18 points lower than just twelve months earlier, indicative of the credit crisis that the country has battled since 2006. Not only has the credit market tightened its lending standards, borrowers scores have been trending downward. This has made obtaining credit much more difficult than in previous years, which illustrates the importance of preserving your good credit or repairing your problem credit.
Generally speaking, a score above 720 will likely qualify a borrower for a lender's best rates in most categories. Although some offers are reserved for scores above 740 or 780. Typically, a score below 620 is considered "sub-prime" by most creditors.
Despite not having a single answer to the question of what is good and what is bad, it should be clear that the goal for all of us should be scores in the mid 700's and approaching 800. If your credit scores are well under this goal, do not despair - you can increase them with a little time, energy and commitment.
Your credit score is calculated from the information in your credit report. As such, it is important to know what information is in a credit report and how it affects your scores.
All credit reports contain information about you - your name, address, social security number, and employer information. Typically, it will show your current and previous address and your current and previous employer. In addition to this basic information, your report will also include the following information.
1. Your credit account information: This is called your "trade lines." These can include loans, credit cards and any other line of credit you may have. The report will list the kind of credit account, how long it has been open, your balance and your credit limit (usually), and your payment history.
2. Inquiries: Inquiries are requests that people have made to view your credit report. There are two types of inquiry - "hard" and "soft" inquiries. Hard inquiries are made when you authorize a creditor to check your credit, such as when you apply for credit. Soft inquiries are made when a lender is updating your information or when creditors make pre-approved offers. A soft inquiry is also made when you check your own credit. Hard inquiries affect your score; soft do not.
3. Public Information and collection accounts: Public information may include judgments, bankruptcies, foreclosures, tax liens, and even wage garnishments. Collection accounts are typically older accounts in default that have been turned over to, or purchased by, collection agencies.
Public records are obtained from state and county courthouses by the credit reporting companies and their data collectors. Since this is publicly available information, anyone who wishes to access it is able to do so.
Remember, credit reporting is big business and the bureaus work hard to dig up any and all information they can on you. And, individual creditors set different standards for what they feel is a high or low credit score. Thus, it is your responsibility to understand what factors go into making your score high or low. This way you'll maximize your chances of getting the best deals for financing, no matter what type of loan you are requesting.
About the Author Chris Esposito works through CM Direct to provide home renovation loans and home improvement loans for individuals who wish to rehab a property. To learn more about home improvement loans and renovation financing in general, check out www.DirectRehabLoans.com, or call (877) 876-3688.
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