Reading time: 3 minutes
Highlights:
Credit scores are calculated using information in your credit report
Credit scores from 660 to 900 are generally considered good, very good, or excellent
There’s no “magic number” to reach when it comes to receiving better loan rates and terms
It’s an age-old question we get, and to answer it requires that we start with the basics: What is a credit score, anyway?
A credit score is a number, generally between 300 and 900, that helps determine your creditworthiness. Credit scores are calculated using information in your credit report,including your payment history; the amount of debt you have; and the length of your credit history.
Credit scores are intended to help lenders, creditors and others make fair decisions on whether or not to “take a risk” on someone. The risk might involve giving that person a loan (will they repay it?), offering a credit card (will they make timely payments?) or approving their apartment rental application (will they pay their rent?).
While your credit score is important, it is only one of several pieces of information an organization will typically use to determine your creditworthiness.
It’s also important to remember that everyone’s financial and credit situation is different, and there’s no “magic number” to reach when it comes to receiving better loan rates and terms.
There are many different credit score models used today by lenders and other organizations. These scores all have the same goal: to predict a consumer’s likelihood to pay their bills. There are some differences around how the various data elements on a credit report factor into the score calculations.
Although credit scoring models vary,generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent. Higher credit scores mean you have demonstrated responsible credit behaviour in the past, which may make potential lenders and creditors more confident about your ability to repay a debt when evaluating your request for credit.
Lenders generally see those with credit scores 660 and up as acceptable or lower-risk borrowers. Those with credit scores below 660 may be less likely to qualify for better loan terms. Those with lower scores who fall into the “poor” credit range (generally below 560) are more likely to have difficulty getting credit or qualifying for better loan terms.
How Do Your Actions Impact Credit Scores?
Here are some tried and true things to keep top of mind as you begin to establish – or maintain – good credit:
Pay your bills on time, every time. This doesn’t just include credit cards – late or missed payments on other accounts, such as cell phones, may be reported to the credit bureaus, which may impact your credit scores. If you’re having trouble paying a bill, contact the lender immediately. Don’t skip payments, even if you’re disputing a bill.
Keep your credit card balance well below the limit. A higher balance compared to your credit limit may impact your credit score.
Apply for credit sparingly. Applying for multiple credit accounts within a short time period may impact your credit score.
Check your credit reports regularly. Request a free copy of your credit report and check it to make sure your personal information is correct and there is no inaccurate or incomplete account information. If you find information you believe is inaccurate or incomplete, contact the lender or creditor. You can also file a dispute with the credit bureau that provided the report. Remember: checking your own credit report or credit score won’t affect your credit scores.
