Although credit scores are widely known to be incredibly influential in the types of credit and interest rates you might qualify for, very few people have a real understanding of the actual meaning of their own score. What exactly is a good score? These numbers fall between 850 and 350, with 850 being the best score possible. However, most scores fall somewhere between these two figures.

How is Credit Calculated?

There are various pieces of information that are utilized to calculate your credit score. However, all of this information is not created equal. For instance, although both payment history and variety of credit are used to determine your score, they do not have an equivalent weight. Following is a generic look at the variables that are utilized to calculate your score and how heavily each influences it. Keep in mind that this is general information but is not written in stone for all circumstances.

Variables                                           Percentage of Score
Payment History 35%
Outstanding Debt Amount 30%
Credit History Time Frame 15%
New Credit 10%
Credit Diversity 10%

Credit Ranges

There are some general score ranges that can help you determine if your finances are where they need to be or not. Obviously, the higher your score, the better off you are. The following gives you a general idea of what your score means, but there is no 100% set-in-stone scale.

Score Range Score Meaning
720 – 850 Excellent Credit
690 – 720 Good Credit
650 – 690 Okay Credit
350 – 650 Bad Credit
0 – 349 Unestablished Credit

The average credit score in America is 693. However, it takes time and good repayment habits to build a good credit rating. You may note that having absolutely no credit is just as bad, or worse, than having bad credit. Although it is imperative not to overextend your finances, it is also important to demonstrate through the timely repayment of creditors that you are a good credit risk. Otherwise, getting serious loans or credit cards with decent interest rates can be incredibly difficult.

How Do Banks and Lenders View These Ranges?

To get the very best interest rates, you’ll want to have a credit score of at least 700. These are coined ‘prime scores’ and will give borrowers the very best terms available. However, having a score lower than 700 doesn’t mean that you will never qualify for a loan or a credit card. It does mean that you will pay a higher rate than a person whose score falls in that prime category.

Keep in mind, as well, that it takes time to build an excellent, or even a good, credit score. It doesn’t happen immediately. However, by making timely payments on debt owed, and keeping debt to income ratios down, you will see your credit improving consistently.

Credit is undeniably important, but understanding your score and it’s impact on your finances isn’t exactly simple. Remember, a high score is earned over time. The better your score, the better financial opportunities that will come your way.