The elements of creating a good credit score are relatively simple. Basically a credit score is a number that tells lenders how likely it is that you are going to be a good credit risk. Any institution that might lend you money will look at your credit score before determining whether to lend you money and under what terms.
It is not tied to your income. People with low incomes can have very high credit scores, while people with higher earnings can have lower credit scores.
It helps to take a detailed look at what a good credit score is. Go to http://aaacreditguide.com/credit-scores/what-is-a-good-credit-score/ to learn more about how credit scores are calculated. This post gives an overview, but more research is always better.
How Is A Credit Score Calculated?
The credit reporting agencies, the ones that determine your credit score, and FICO, look at your payment history, amount of money owed, the length of your credit history, any new credit and the mix of different types of credit.
Lenders and providers of loans furnish the reporting agencies with information about your use of credit; how much you owe, whether you have been late on a payment, whether your debts have been sent to collection agents,
The most important score that counts is your FICO score. It can range from a low end of 300 to a perfect score of 850.
Here are the ranges that make up excellent, good, fair, poor and bad credit:
Excellent: 781 and above
Bad: 500 and below
How Do You Get A Good Credit Score?
First of all, make a plan to pay down your outstanding balances. Having a good credit utilization rate of 30% makes you a better credit risk, because it shows you are a responsible credit user. Basically, if you have a credit limit of $3,000 and you have a $900 balance, that means you are using 30% of your available credit.
Dispute any old or inaccurate items on your credit report. Items can stay on your credit history for up to 7 years. And you have the right to dispute mistakes on your credit report. Learn how to write a credit dispute letter here.
Why is a Good Credit Score Important?
With a good credit score you can get lower rates for a mortgage, lower interest on car loans and even get a good deal on insurance. Plus you can get lower credit card rates, as well as access to better credit cards with more rewards, cash-back bonuses and higher limits.
Even more important for your long-term earning potential, plenty of employers use credit checks when making the call on hiring new employees or promoting internal employees.