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4. You can know if you have a good or bad credit score
As you read earlier in this article you don't have just one credit score. Lenders can choose from among many different credit scores and each has its own credit score range. The reason this is important is because when you get your credit score you need to know the various ranges so you can understand how your number fits in. For example, your FICO score ranges from a low of 300 to a high of 850. You also have a VantageScore with the same credit scoring range. However, the VantageScore Scale (versions 1.0 and 2.0) ranges from 501 to 990 and your PLUS score goes from 330 to 830. But in any case, regardless of which scoring model your lender chooses, the simple fact is that the higher your score the better. As an example of this if your FICO score is 830, this puts you just 10 points away from the highest possible score and you would be considered "super prime." On the other hand if your VantageScore Scale score is 840 that's not as great because it leaves you 150 points shy of the maximum score. But given the fact that both your FICO score and VantageScore basically range from 301 to 850 is possible to see where you stand by category as follows.
• Excellent Credit: 750+
• Good Credit: 700-749
• Fair Credit: 650-699
• Poor Credit: 600-649
• Bad Credit: below 599
So the answer to the question what is a good credit score is any score above 700.
5. You can improve your credit score
Since a bad credit score will cost you thousands of dollars in interest, increase the cost of your auto insurance and maybe even keep you from renting a house or apartment it’s important to know what you can do to improve it.
a. Make sure your credit reports are accurate
As noted above, there could be erroneous information in one of your credit reports or even worse you could be the victim of identity theft. If you do find errors in one of your reports you need to dispute it immediately. Each of the three credit bureaus has a form on their website for this purpose but it’s much better to do it in writing. You should send your letter certified and return receipt requested so that you will have proof you disputed the information. When you file a dispute with a credit bureau it will contact the company that provided the information and ask that it be verified. If the company that provided the information doesn't respond within 30 days or can't verify it, the credit bureau must remove it from your credit report.
b. See where you stand
Once you've learned that your credit reports are accurate the next step is to get your credit score – assuming you don’t already have it. The only place you can get your true FICO score is on the website www.myfico.com but it will cost you as you will be required to sign up for its monitoring service at $19.95 a month. But it's not critical that you get your FICO score. You could get your score free at sites such as CreditKarma.com and CreditSesame.com. And no, neither of these will be your true FICO score but they will be close enough for you to know where you stand.
c. Determine why you have a low score
All credit scoring models include a "reason code" or "score factors" that explain why you lost the most points in your credit score calculation. If you check these out you'll know why you have a low score and can create a plan to improve it.
d. Create a plan and stay with it
Once you know why you have a low credit score you can make a plan to improve it. There are usually three reasons why you have a low credit score. The first is that you have a lot of credit card debt. The second is negative information in your report because you did not use your credit wisely and three is a mixture of these.
If your problem is that you have more credit card debt than you should, there is a quick and easy answer – providing you have enough money to pay down some of your debts. The second biggest component in your credit score is called credit utilization or your debt-to-credit ratio. If you can improve that ratio by reducing your credit card debt you should see an improvement in your credit score practically overnight. Unfortunately, if the problem is that you have negative information in your credit report it’s going to take time and changes in the way you handle credit to improve your score. If you have unpaid debts or debts that have gone to collection you'll need to address them. You'll also want to start adding new more positive information to your credit reports to make up for the damage you've done in the past. What this amounts to is making sure you keep your credit card balances low and always make your credit card payments on time.
To know more about all five components that make up your credit score and which ones you could work on, be sure to watch this short video courtesy of National Debt Relief.