What is a Good Credit Score?

That question gets asked more often to financial writers and on personal finance websites. The odd part, is that the question itself is meaningless. Its like asking what is a good football score, or what is a good color. The answer depends entirely upon why you are asking.

For example, a good color for a hunter’s safety vest is orange, but a good color to paint your calming reading room is definitely not orange. What makes a good credit score depends upon why you are asking as well.

Certain loans are more risky than others. On the risk hierarchy, loans with no collateral are riskier than loans with hard to sell or hard to value collateral, which are riskier than car loans, which are riskier than mortgages, which are riskier than loans backed by deposits. For each type of loan, you will need a different credit score. The highest credit ratings will be needed for the riskiest loans.

What Is A Bad Credit Score

The easiest way to start answering the question, is to determine what a bad credit score is. Any score below 650 is considered to be a sub-prime score. In other words, everything below 650 we can eliminate as being a good score.

What Is A Great Credit Score

At the other end of the spectrum is a really great credit score. Here things can vary a little bit more, but in practice, a credit score over 750 is considered excellent. If you are ever turned down for a loan with a 750+ credit score, it will be for a reason unrelated to your credit. For example, certain loan amounts might require some minimum income. After all, no matter how great your credit is, there is just no way for someone making $60,000 per year to pay off a $800,000 loan over 2 years without most of the money already sitting in an account somewhere. คาสิโนที่ดีที่สุด

Good Credit Scores

That leaves credit scores within the range of 650 to 750 as those that can be considered a good credit score.

At this level, it all comes down to the loan.

Loans without collateral will require a great credit score unless it is for a small amount. Lenders can make up the losses on smaller loans by charging higher interest rates. If a lender gave 100 loans with higher interest rates that means that each loan generates higher profits. So, if 5 to 10 borrowers default on their loans, that income can cover those losses and still generate a profit. But, if you don’t want to pay credit card like interest rates, a good credit score for an unsecured loan is 730 or higher.

During normal non-crisis lending environments a mortgage can be had by a borrower with a credit score above 720 with a 10% to 20% down payment and solid income. So, a credit score around 720 would be a good credit score for a mortgage.

Car loans can be had easier because they are smaller amounts, easier to repossess than a house, and the companies that make and sell cars have an incentive to make loans when possible to sell their product. Banks and credit unions have to compete with that in order to get car loan business. For a car loan that is priced right for your income, a score of 700 would be an easy approval. So, a score near 700 would be considered a good credit score for a car loan.

A special case is student loans. For loans run by the federal government, the lender is guaranteed to be repaid by the Feds. So, just about any credit rating is good enough for those loans.

In summary, good credit scores generally start with a 7. High 600s can sometimes be “good enough” but aren’t usually considered good overall.


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