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Monday, 11 September 2006
The "Goods" on Good Credit*
Ok, so everyone knows its important to have good credit, but what exactly is "Good Credit"?
Your credit risk, or conversely how likely you are to pay off debt, is rated on a scale ranging from 300 to 800. Generally speaking, anything higher than 660 is considered good credit and will qualify your most loans you apply for. A credit score falling within the 620 to 660 isn't bad either; it may just take more work to convince the lender that the risk is worth it, at a higher interest rate, of course. Below 620 is usually considered low, or poor and may prohibit you from obtaining the loan you're looking for, although these is still a chance, albeit a small one.
Some lending agencies may make exceptions on account of incorrect or incomplete information on your credit report, so always make sure you disclose this information when you apply for your loan. Sometimes a job loss or even extended sickness may excuse borrowers as well.
So...how do you get good credit?
When determining an individual's credit rating, credit agencies use five characteristics; here they are in order of importance...
- Past delinquency - If you often miss payments, you will appear as a higher risk.
- The way credit has been used - If your available credit is low because you continually carry high levels of credit card debt, your credit rating will suffer.
- The age of the credit file - The longer you have credit, the less risky you will be considered.
- Number credit inquiries - When you apply for credit, the lender will most likely check your credit file. If this happens several times over a short period of time, its can negatively affect your credit.
- Different types of credit - Your credit score will improve if you carry different types of debt (i.e. - installment loans, secured credit card debt or revolving loans). Remember that the above must still apply, so don't go out accumulating various amounts of debt just to improve your credit!