A good credit rating can be determined through a variety of factors. Your proven credit history, your current debt to income ratio, and your amount of bad debt (unsecured credit card debt, auto loans, etc.) can be compared to your amount of good debt (home loans). People with a good credit rating generally qualify for prime rates in loans, essentially the standard rate. People with an excellent credit rating can qualify for loans with a lower than prime interest rate.
Lenders may assess what constitutes a good credit rating differently. In fact, defining it is flexible to a degree and some lenders may be interested in specific aspects of your score, more than in other aspects. You can ask lenders what aspects of your credit score are most important.
Since flexibility in what is considered a good credit rating exists, you’ll get different answers from different people about what is a “good” or “optimal” score. Financial guru Suze Orman suggests that a really top notch rating must be at least a 720 Fair Isaac Company (FICO) score, a scoring method developed by the credit monitoring agency Experian. Orman has also stated, in a conflicting manner, that a score above 690 is good and generally required to get better loan rates.
Actually, some agencies like Fannie Mae consider that 620 is good, and this number will likely get you a prime rate. On the other hand, some sources, like the PBS show Frontline have suggested that 770 is the optimal credit score. Most companies do say that you need at least 650-690 in order to have a good credit rating. An optimal credit rating is always considered over 700, and usually in the mid 700s.
Since there are numerous interpretations of what a good credit score can be, one of the things consumers should do is shop around, especially when their credit rating is floating in the top 600s. In some cases, this credit rating will qualify you for lower interest rates. Other banks and lenders are unimpressed by this score. If you have a good or better than good rating, it can really be a money saver to figure out which lenders are likely to offer you the best deals.
When you know you have a good credit rating, or you think you do, ask lenders what score they consider to be good. Virtually all lenders have a formula for calculating interest rates based on their definition of good and bad ratings. When you know what number each lender considers as a good, you can make decisions on the places to best apply for credit.
If your rating is below 600, you may be considered at risk as a borrower. Failing to have a good credit rating usually means paying higher interest rates. When you can, try to improve your credit rating by making payments on time, by paying off credit cards and by reducing your debt to income ratio. Also try to avoid accumulating more bad debt, as this may further decrease your credit rating. Applying for new credit, especially of the credit card variety, can also decrease a rating.
