Good Credit

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Good Credit

What Is Good Credit?

Good credit is a credit history categorization that indicates the borrower has a reasonably good credit score and is a safe credit risk. Credit reporting companies give credit ratings. Lenders examine credit scores in order to make credit underwriting decisions and provide background check information.

Key Takeaways

  • Good credit is a credit history categorization that indicates the borrower has a reasonably good credit score and is a safe credit risk.
  • Borrowers are assigned a credit score based on their credit history, which is maintained in a credit report.
  • Lenders examine credit scores in order to make credit underwriting decisions and provide background check information.

Understanding Good Credit

Borrowers are assigned a credit score based on their credit history, which is maintained in a credit report. Credit score differs depending on the methodology used to calculate it. The FICO score is the most often utilized credit score.

The credit score of a borrower might vary from 300 to 850. Credit scores are divided into five categories: outstanding, very good, good, fair, and extremely low. Borrowers with excellent credit may be assigned to any of the top three levels. Borrowers with excellent credit have a credit score of 800 or better, according to Experian. Borrowers with excellent credit have credit scores ranging from 740 to 799, while those with fair credit have scores ranging from 670 to 739.

As a result, applicants with credit scores of 670 or above are deemed to have strong credit and have the highest chance of gaining loan approval from a lender.

The latter two levels are fair and terrible. Borrowers in these two groups have greater trouble obtaining credit and are often subjected to higher interest rates in the form of subprime loans. Borrowers with fair credit have a credit score between 580 and 669, while those with bad credit have a score of 579 or below. 1

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Borrower Considerations

A borrower may take a variety of methods to enhance their credit score. A borrower’s payment history accounts for 35% of his or her credit score. 2 Any late payments will have a negative influence on a credit score and will stay on a credit record for seven years. 3 To increase their credit ratings, consumers should make their payments on time and prevent delinquencies.

Another easy strategy to enhance a credit score is to minimize the total amount due. A borrower’s credit score is calculated using 30% of total credit usage. A borrower’s credit score may be swiftly improved by drastically reducing current loan levels. 2

While paying off debt is often the greatest strategy to boost your credit score, you may also ask your credit card issuer for an increase in your credit limit. This method efficiently reduces your credit use, which may help your credit score. Your credit card provider, however, may refuse an increase based on your credit risk profile. If an increase is allowed, it is critical that the increased credit be handled wisely and does not contradict the objective by negatively impacting your credit score.

Other variables influencing credit scores include credit history duration, credit kinds utilized, new credit lines granted, and recent credit queries. Borrowers should use caution while taking on additional credit lines and applying for new credit accounts. A large number of hard inquiries in a short period of time may harm a borrower’s credit score and raise lenders’ perceptions of their likelihood of default. 1

Lender Considerations

A borrower’s credit score has a considerable impact on the sort of credit for which they are qualified. Traditional lenders prefer applicants with strong credit. This implies that only applicants with credit scores of 670 or better will be considered. Overall, these applicants are more likely to secure loan approvals. They are also more likely to secure better loan conditions than consumers with low credit ratings.

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