Believe it or not, experts don’t agree on what defines a good versus excellent credit score. In fact, the methodology to calculate a credit score is so top secret that experts can only guess at the factors that contribute to increasing your credit score. With that said, we’ve done a lot of research, taken notes, and have some observations about how to gauge the quality of your score.
The first thing you need to do is to find your credit score. There are hundreds of sites that offer it for free, but the catch is that you have to sign up for their monthly credit monitoring service. The good news is that you can cancel after you get your free credit score.
Other ways to get your credit score for free are to ask anyone that has recently run your score. If you have applied for a loan, activated a cell phone account, or even gotten an insurance quote, then it is likely that someone has just pulled up and looked at your credit score. We’re not sure if they are required to tell you your score, but every time we’ve asked they have told us.
Credit scores range from 300 to 850. Once you have your score, it’s time to see level of credit risk you fit into. Here are our observations on the different risk levels associated with credit scores:
Excellent Credit (760 – 850)
We believe that a score of 760 or higher means that you have excellent credit. This means that you will be eligible for the best loan, credit card and insurance rates, and that increasing your score any further is not really necessary.
Very Good Credit (700 – 760)
We believe that a score of 700 to 760 is very good credit. With these scores you should be eligible for the close to the best rates on loans, insurance and credit cards. Although if you are at the low end of this range you may have to pay slightly higher rates with some lenders. All lenders vary.
Good Credit (660 – 700)
We believe that a score between 660 and 700 is good, or average, credit. We use the cutoff of 660 because it is generally agreed that this is the minimum required score to qualify for a conventional mortgage. However, with any score under 700 you will not be eligible for the best rates. It is believed that rates increase slightly for about every 20 points below 700. With that said, all lenders are different, so with a score in this range it would probably pay to shop around and find a lender with the best rates for your score. If you are in this category, you should read up on ways to increase your credit score. It takes quite a few months to make a change, but there may be some easy and worthwhile ways to do it.
Below Average Credit (620 – 660)
Scores from 620 to 660 are below average credit, or should we say above average risk. If your score is in this range there are likely some negatives on your credit such as late payments or defaults. Or maybe you just haven’t established any credit history yet. At these levels you will pay higher rates and fees for almost anything financial. It is in your best interest to find ways to increase your credit score.
Bad Credit (300 – 620)
It is generally agreed that scores below 620 are the highest credit risk. In other words, if your score falls into this category you are going to have a hard time finding any kind of loan or credit card. You will likely not even be able to open a cell phone account unless it is pre-paid, and your insurance rates will be higher than others. If you find yourself here, it is usually because of a lot of credit problems, including bankruptcy, delinquincies, charge-offs and defaults. At this point you’ll need to get your act together to raise your score. You may want to consider calling your creditors and making deals with them whereby you pay off your old debts and they remove it from your credit report. It is also possible to hire a debt counselor to help you clean up your credit report and negotiate with creditors. If you go this route, be careful, every site on the web promises instant results but very few deliver. Do your research and go with a well-trusted name if you decide to take this path.