What I’ve Been Up To

Ask Jean: How is My Credit Score?

What is considered a good credit score today? I know lenders have gotten tighter than they used to be about what they’ll loan out and at what interest rates, and I’m not sure what I can expect with my credit score. – Caroline, New Jersey

Caroline,

You’re right – just like Americans have been tightening their belts when it comes to their spending, lenders have had to do the same when it comes to lending. Your risk factor as a customer depends on your credit score, which helps lenders understand what kind of a customer you’ll be before they take you on. Your credit score is determined using five factors:
35% Payment History. Paying your bills on time and keeping things like bankruptcy and collection accounts off your record will help keep your score high.
30% Utilization Ratio. This is also called your credit-to-debt ratio. You only want to be using about 10% of the credit you have available to you at any given time, so make sure you monitor how much you’re spending each month.
15% Account Age. Keeping your accounts open for long periods of time shows that you’re able to maintain a good relationship with lenders.
10% Account Mix. Having a wide range of account types – a credit card, car loan, and mortgage, for example – shows you’re able to maintain a variety of debts.
10% Account inquiries. Checking your own credit score or report won’t impact your score, but when you’re applying for a credit card or loan, lenders will look at your credit history to determine what kind of customer you’d be – and those inquiries will have a small impact on your score.

Your credit score will be higher if you maintain the most desirable status in each of these categories, and will go down as your standing slips. Scores range from 300 to 850, and depending on where your score falls along that spectrum will determine your riskiness as a customer.

• 760+ — Very Good. You’re considered to be a low credit risk by lenders. You’re responsible with your accounts – meaning you pay them on time and don’t max them out – and will qualify for the many of the best interest rates.

• 700 – 760 – Good. You might have made some late payments in the past, but your accounts are all up-to-date today and you don’t have a lot of debt in your name. You might not qualify for the best interest rates, but the ones you’re offered will still be competitive.

• 650 – 700 – Fair. Your credit history may have a few older bumps and bruises, or you could have a lot of debt account or a lot of credit inquiries because you’re looking to open a new account or take out a loan. You might struggle a bit to find a loan with a good interest rate.

• 600 – 750 – Bad. If your accounts show a lot of late payments, bankruptcy, or collections, you’ll be considered a high risk. To protect themselves, lenders might only offer you high interest rates, or they might deny you altogether.

• Below 600 – Very Bad. You’ll likely struggle to find a lender that will accept your applications. If you do find one, you’ll probably have a high interest rate, or you’ll probably need to make a large down payment or have a co-signer. Avoid excessive shopping for loans, work to clear any collection accounts, and make sure to pay your bills on time.

If you’re dissatisfied with your score, try to follow the guidelines in the category above. Using the JeanChatzky Score Builder can help you tackle negative items on your credit report and correct them, so you see your score go up over time. Having some guidance to help you get on track will help you feel financially secure.

– Jean