One of the most often asked questions we get is, “What is a good credit score?” While the question is fairly straight forward, the answer is quite tricky. You see, a “good credit score” is a subjective term. It depends on what type of loan or credit you intend to apply for, how much money you plan to put down, and what interest rate you are willing to pay.
In technical terms a 700 FICO score is considered to be a good credit score, below 700 is considered to be “fair”, and above 750 is considered to be “excellent”. Lenders most often use your FICO score to make lending decisions, and for the most part follow the guidelines set to make a credit determination. It is important to note though that a 700 FICO score is not required to to get financed for a home, car, or credit card. Most lenders will have no problem lending to you if you have a credit score or 600 or above. The most notable difference however, will be the amount you are required to put down as a down payment, and the interest rate for which you qualify.
When it comes right down to it, the most important opinion of what constitutes a good credit score, is the perspective of the lender. All lenders use what is called a matrix to make credit determination. A matrix is a very clear black and white guide on who qualifies for a particular program, and if they qualify, what rate they get and what minimum down payment will be required. This matrix is adjusted by the lender regularly to hit a target volume of business for the year. If the lender is below target, they may adjust the matrix to allow for lower credit scores, or to offer lower rates to those with lower credit scores or require a lower down payment. Alternatively, if the lender is above target for any given period, they may move the matrix in the opposite direction to slow lending. In short, the lender’s need to add to their portfolio will dictate what is considered a good credit score, and this could vary from lender to lender.