Credit Score Scale: What is a Good Credit Score?

You know that your credit score is one of the most important bits of financial information about you.

Where you fall on the credit score scale is often considered to be a way of determining what kind of person you are when it comes to managing your money.

Lenders ' and plenty of others ' use your position on the credit score scale to make decisions about how they will treat you in money matters.

The only problem is that many of us don't know what our credit score is.

And when you head to one of those sites to get your 'free credit score' it's really not free AND it's not your real credit score.

I found this out the hard way when I was trying to find my real FICO credit score.

If you're just as confused as I, here's a quick look at determining your credit score scale.

What is the Credit Score Scale?

When most of us think of credit scoring, we think of the FICO score, put out by the Fair Isaac Corporation. This credit score ranges between 300 and 850, with 300 representing the lowest possible credit score. However, it is important to realize that this is not the only score available. Other companies use variations of FICO's formula to create their own scores. Additionally, there are companies out there that have created their own credit score scale altogether. However, for the most part, you are likely to run into some version of credit scoring that uses a model similar to the FICO score.

The point of the credit score scale is to allow lenders and other financial services providers (like insurance agents) to immediately ascertain whether or not you are a credit risk. If you have a low credit score, then service providers, like cell phone companies, and even a potential employer, might make assumptions that your level of financial responsibility is low, and that you might prove irresponsible in other areas as well. Clearly, lenders view a low credit score as something that increases the chance that they won't be repaid the money they lend.

Your position on the credit score scale is usually figured by using a formula that takes into account the following information:

It is important to realize that, even though lenders see your credit score as a big piece of the puzzle, they may also look at other items, such as your income and your employment history, when making a decision.

What is a Good Credit Score?

For the most part, a good credit score depends on the current market conditions. Prior to the financial crisis, a 680 was considered good enough to get a good interest rate on many loans. Now, many lenders want to see a score of at least 720 to offer you the best deal.

Generally, though, a credit score below 600 is considered quite poor. If you score between 650 and 699, you are considered to have be in the fair to good range. Some won't have a problem with you when you have a score of between 620 and 700, but you probably won't be offered the best terms. A good credit score can mean more than just a good interest rate on a loan: It can also lead to lower insurance premiums and the ability to qualify to move into a better rental.

Credit scoring isn't exact, but it's what is widely used, and it is a good idea to pay attention to your place on the credit score scale if you want to succeed financially.

photo credit: Casey Serin

Tagged as: credit, Credit Score, credit score range, credit score scale, FICO Score, good credit, good credit score, low credit score