Your credit score plays an important role in how lending institutions judge your credit credibility, a number they can use to evaluate how reliable you are in paying off your debt.

But what exactly is a good credit score? – What is the magic number?

Rest assured there is no magical number, lenders and credit institutions have their own criteria when it comes to providing credit and even if your credit score isn’t as good according to the criteria by one credit institution, another credit institution will deem your credit score as good.

However, if there is a number you could use to grade your credit score as good, yet not to be used as an universal number, a credit score of around 660 could be regarded as a good credit score.

When you have a good credit score the probability you can negotiate lower interest rates is much higher then when you have a less then perfect credit score, that’s why it is so important to request your credit report and regularly give yourself a credit check and monitor your credit score and if necessary to take action and repair your credit score by removing questionable items from your credit report that could be calculated into your credit score.

The 3 leading credit bureaus, TransUnion, Equifax and Experion feeds their credit information to the Fair Isaac Corporation, (better known as FICO) and based on this information and FICO’s credit score rating formula, a credit score is assigned to each credit consumer.

Formula? What factors are exactly used to determine my credit score?

Your historical payment data, length of your credit history, total amount owned, new credit and what type of credit you have used are all factors how your credit score is being calculated.

Lets dive into this a little further:

Payments History

Your ability to pay off your monthly credit bills, your credit card bill, mortgage payments, etc is responsible for a big part how your credit score is calculated.

Having a few late payments doesn’t lower your credit score dramatically, especially over time the effect of these late payments will be less noticeable in your credit score, if the late payment involves a mortgage payment then that’s something that will not become less noticeable. (Consists of approx: 35% of your score)

Amount of Money You Owe and Amount of Credit Accounts

In order to determine your credit score another factor that plays a big part in your overall credit score calculation is the amount of credit lines you have and the amount of money you owe on these accounts.

Because you have different credit accounts it doesn’t automatically make you a high risk consumer to be given credit. It’s the increased likelihood someone with a lot of money owned on different credit accounts that can not make payments on time.

This likelihood is scored based on historical statistical consumer data collected by credit score agencies over time. (Consists of approx: 30%)

The Length Of Your Credit History

A longer history record where it shows you make your payments on time and are handling your credit responsibly reflects positively on your credit score.

When you don’t have an established credit history it doesn’t mean you can’t have a high credit score, because the overall appearance of your credit report contributes to your overall score. (Consists of approx: 15%)

New Credit Accounts

When a consumer opens different credit accounts in a short time frame it could mean there is a greater risk involved for the consumer.

Because this may indicate irresponsible behavior that leads to late payments or even defaulting on making payments. Making requests for new credit can affect your credit score as these requests can be reported to one of the 3 credit agencies, not every credit request could make it’s way into your credit report because it’s not required by law for companies to report a credit request to credit score agencies.

Shopping for mortgage quotes for example, simply inquiring about rates is a different matter, as FICO…the leading credit score agency can distinguish the difference between actually applying and merely inquiring about rates. (Consists of approx 10%)

What Types Of Credits Are In Use

The various types of credit accounts will also be taken into account for calculating your credit score. With that said it’s not necessary to open a credit account for every type of credit out there, your FICO score will simply take the various type of accounts into account and use it in their overall scoring formula. (approximately 10%)

In Conclusion

As your credit score is being used by companies/institutions to asses your credit trustworthiness and your FICO score is the most widely used, there is not a fixed magical number. However there are researches done how on average a certain FICO score can for example lower your monthly mortgage payments.

It’s advisable to know your FICO score and work on your FICO score by removing questionable items on your credit report, you can sign up for a Free trial in the MyFICO program and then cancel your subscription so you can obtain your FICO score for free.

Of course if you want to be on top of your FICO score it’s advisable to not cancel your subscription, as it’s very affordable and you have a better chain of support to ask questions about your FICO score as well as monitoring your FICO score and receive alerts when something goes wrong…so you’ll be there on time to catch any problems!