How Do I Know If I Have Good Credit?
So you finally decided to make a big financial decision in your life, i.e. you are moving out, buying a house, getting a car, etc. Well did you know you need good credit to do this?
Credit is that little thing your parents warned you to stay away from but you still know very little about. Well it’s actually a huge factor in your adult life as you move forward into your career and personal goals.
Having good credit could mean the difference between moving out of your parent’s basement and into a new apartment to not being able to buy a car and having to settle with the family car.
Just because you’ve never used credit doesn’t mean you have a good score and just because you’ve been wise about using it doesn’t mean you have a good score either.
Myth About Good Credit Score
No credit card, no bad score.
A credit score depends on a number of factors and most importantly that you use it. Many Americans believe that just because they have never taken out a credit card or fallen behind on their bills that they have great credit. Not true.
You should have one or two credit cards that you use consistently for making small purchases. Creditors want to see that you are capable of having a credit card while being able to use it wisely.
Also paying bills on time factors into your credit score. Paying your phone bill, electric bill, car note and other bills on time actually affect your credit score. These monthly bills are constantly working towards your credit, whether you know it and can negatively affect your credit score.
The first step in knowing whether you even have good or bad credit is checking your score. Whether good or bad it is important to know this number as it affects your financial future. Luckily, there are three main credit reporting bureaus that keep this number on file for you so that you can keep track of your debts and credit history.
Three Credit Reporting Bureaus
There are three main credit reporting bureaus, Equifax, Experian and TransUnion in the United States that give you your credit (FICO) score. This score is a measure of your credit risk to a company and is the basis for any line of credit in the U.S.
The number is calculated on a scale of 300 to 850, the higher the score the lower of a credit risk you are to a creditor. The lower the score the higher of a risk you are to a creditor.
Basically, if you have a high number, you have good credit. But if you have a low number, you have bad credit.
However, there is a bright side to this score, each creditor makes their own decision on whether to accept your credit score or not, based on their conditions.
So for example, say you have a credit score of 600 and want to apply for a MasterCard credit card but they deny you citing your low credit score. Visa might accept your score still because they think you have good enough credit to open a card with them
Long story short, a poor credit score doesn’t always mean you can’t get credit or loans.
However, there is a general scale that allows you to easily know where you fall in the range of good to bad credit.
Credit Score Range
Excellent Credit: 781-850
Good Credit: 661-780
Fair Credit: 601-660
Poor Credit: 501-600
Bad Credit: below 500
Again, this scale is not set and stone and is subject to change depending on the credit company you are dealing with.
Keeping A Good Credit Score
Now that you have realized whether you have good or bad credit you can start mapping out your financial future.
Keep in mind that you should always try to not owe money to any company, least of all your creditors or credit card companies.
Having good credit allows for a lot of financial comfort, flexibility and freedom. You don’t want to be stressed out worrying about paying bills on time or budgeting every month just to make ends meet.
Be smart with your money but also with your financial decisions.