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Why do You Need a Good Credit Score?

By Janet Lacey
Published: Sunday, September 20th, 2009

Before we get into why you need a good credit score, let’s first understand what a credit score is. A credit score is like an SAT score about your financial status. It gives the lender an understanding as to what your credit history actually looks like.

A credit score is not the same as say your credit report. A credit report is something which gives a complete listing of all the loans that you have outstanding, and how promptly you make your payments. For example, do you regularly default or pay late payment fees etc. the credit report also has entries about whether you have been arrested, filed for bankruptcy or ever been sued by creditors.

But the credit score is more straight forward. It’s basically a 3 digit number which gives an understanding to the creditors as to how promptly you have paid your dues and how much you still owe. It’s not very complicated actually. To be honest, it’s a pretty straight forward mechanism to measure one’s ability to pay ones dues.

So now, let’s get into why you need a good credit score. A good credit score will basically help you get a loan. And then a very good credit score will help you get a loan at a much lower rate of interest. But if your credit score is less, then you might have to apply for a loan in the subprime market. And the rates of interest in these markets are extremely high.

Now let’s get into some figures. What exactly is a good credit score? A good credit score is generally one in the range of around 680 to 720. These are the people who get the better interest rates normally. The national average is around 650 to 680. So make sure you don’t go below this. Generally people with credit scores below 620 are the ones who end up in the subprime market. And the best score or the holy grail of scores is the 770. This is the highest score you can get which will make a tangible difference in the interest rates. It’s not common for a guy with 800 to get the same interest rate as guy with say a 770.

So now that we know what sorts of score ranges are required, how do we go about finding out our score? There are many run of the mill organizations out there which will give out your credit score. You’ve got to subscribe to them on a regular basis. But the government also requires that the three big credit bureaus must submit a copy of your credit report every year. But in order to get your credit score, make sure you research the organization which is handing it out. And make sure your score is right, because you don’t want to play around with that.

So now you know what a why you need a good credit score. Go ahead and register yourself in one of the testing organizations and find out what your score really is.

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