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Good Credit

Good Credit — is a status in the rating system of a credit agency showing the level of creditworthiness. These statuses are important because they allow the banks to see whether an individual can be credited or not. Borrowers without arrears will be approved for a credit. 

What Is Good Credit

Banks check the previous payments of an individual to decide whether to provide them credit. The data on an individual's payments are compelled in the credit score. The more points an individual has, the higher is their status. The good credit status shows the paying capacity of a borrower and signals to the banks that this person pays timely, and they may be credited safely. 

Many credit agencies evaluate creditworthiness. The most well-known is FICO (Fair, Isaac, and Company). This data analysis company has created its system of credit rating. The rating of FICO includes several grades with a corresponding number of points: excellent, very good, good, poor, and very poor.

Rating of FICO: 

  • exceptional — 800-850 points; 
  • very good — 740-799 points;
  • good — 670-739 points;
  • fair — 580-669 points;
  • poor — 300-579 points.

The category “good credit” is right in the middle of this classification. If an individual falls into this category, they will be approved for a credit or a mortgage because this status shows high creditworthiness. On the contrary, the statuses “poor” and “very poor” reflect the low level of paying capacity. The individuals with these statuses will be refused credit. 

Another famous agency is VantageScore. This system was created by three credit bureaus — TransUnion, Experian, and Equifax. The rating of VantageScore differs from the FICO rating. Here, the category “good credit” has another number of points. 

Rating of VantageScore:

  • excellent — 781 - 850 points; 
  • good — 661 - 780 points;
  • fair — 601 - 660 points;
  • poor — 500 - 600 points;
  • very poor — 300 - 499 points.

Both systems are accepted, but different lenders pay attention to the different systems. That’s why it is better to have ratings in FICO and VantageScore, especially since the number of points for a certain status isn’t much different.   

What Influences Good Credit Status

Both systems are accepted by the banks, so the borrower can present the rating from any of them. The main thing they are interested in is a number of points. A credit score consists of points awarded to the borrower. The number of points isn't affected by the credit history of relatives or other irrelevant information. 

The good credit status is impacted by the following factors:

  • Payment history. This category shows the flow of funds and overdue payments on the account to understand how timely an individual pays for a loan.  
  • Credit utilization. This category shows the purpose of most credits and the number of opened accounts.
  • Credit mix. This category means a type of account. There are two types of accounts: installment accounts (car loan, mortgage) and revolving accounts (credit cards). 
  • Credit age. This category means the age of all active accounts.
  • Last credit inquiries. This category shows the last activity on your account. 

Also, some factors that can impact the place in the rating negatively. They are related to payment delays or arrears. The hard inquiries may negatively impact the credit score. Hard inquiries are requests to check the credit account of the borrower. Usually, this happens when a borrower misses a payment. As for the soft inquiries (pre-qualification for offers, self-checks, employer checks), they are safe.

The following factors can negatively influence the good credit status:

  • Frequent opening of new accounts. Too many accounts don’t give the score enough time to recover.
  • Maximizing the credit limit. If the borrower maximizes the credit limit, this means they are over-reliant. 
  • Frequent applications for new credit. This indicates the difficult financial situation and high risk of credit default. 
  • Missing payments. If a borrower misses a payment, the credit score decreases.
  • Too much borrowing. If a borrower can’t pay a debt, the bank will try to reclaim money via court.
  • Absence of credit history. There is no information about the payments of the borrower, so the bank doesn’t know whether they can approve a loan.

How to Obtain Good Credit Status

Changing the status isn’t easy. It requires time and effort, the amount of time depends on the situation. The negative information about the payment history is stored for seven years. Information about the bankruptcies is held for ten years. That’s why it is better to monitor the credit account and avoid arrears.      

Borrower can improve their credit status by the following ways:

  • Make the payments timely. Even the one missing payment negatively influences the credit score. 
  • Avoid the high balance. When the credit approaches the limit, there is a risk of crossing it.
  • Take the loan only if you need it. If you aren't sure that you can pay timely, avoid the credits.
  • Dispute the wrong information. If you see that some information on account weren’t entered or were missed, apply for the dispute.

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