good credit vs bad credit

Good Credit vs Bad Credit Scores: A Comparative Guide

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A recent Pew Trust research revealed that two-thirds of American families’ spending goes into financing core needs. 

It’s no wonder that most of these households have limited disposable income. Juggling between good credit and bad credit amongst these families is often unavoidable.    

With the cost of living hitting the roof, credit has become necessary for most households. Balancing between bad credit and good credit can seem unrealistic at times. 

Most people don’t even understand the difference between bad credit and good credit. So what is the meaning of good credit vs. bad credit?

It’s important to conceptualize this difference for the sake of your financial health. In this article, we compare bad credit score vis-à-vis a good credit score. Read on to learn more.

What Is a Credit Score? 

When considering the credit score, it’s important to understand the difference between good and bad credit. In general terms, good debt is any money borrowed and then spent on items or activities that add value. 

On the contrary, a bad debt result from any money borrowed to fund items or activities with diminishing value. With such background information, it’s easy to answer the question, “What is good vs. bad credit score.”

A credit score refers to a numerical expression, which is an aggregation of your credit files during a specific period. The purpose of a credit score is to offer an assessment of your creditworthiness in the eyes of lenders. Depending on your borrowing behavior, your local credit bureaus will either assign you a good or bad credit score. 

Lenders use this credit score to help them decide on an individual’s ability to repay their loans on time. As such, your credit score depends on the accumulation of positive or negative credit history over time.

The typical credit score ranges between 300 and 850. This range may vary depending on the credit scoring model. However, there are two common types of credit scores. 

Well, these two types of credit scores mean different things in their application.

What Is a Good Credit Score? 

When considering any credit score ranging between 300 and 500, a score of 700 and above qualifies as a good credit score. Anything above 800 in such a score range ranks as an excellent score. 

For most people, their score ranges between 600 and 750. When your credit score is within this range, there’s a high chance that your lender will have a higher confidence level. This is because most lenders assume that individuals with a higher credit score will make their repayment within the set agreement.

If you have been diligent in the repayment of your past loans and credits, then it’s likely that your score will be higher. 

What Is Bad Credit Score? 

On the other hand, a bad credit score represents the lower cadre in any given FICO scorecard. When considering a FICO 8 scale of 300 and 850, a bad credit score is anything below 579. If your credit score ranges between 300 and 579, then the assumption is that you’ll likely default on any future credit or loan forwarded to you. 

For the sake of fairness, there’s also a credit score range between 580 and 669. This score is a fair score, which most lenders use as a basis to gamble when they forward loans to you. When you have an acceptable credit score, your credit application can go either way.

Factors That Determine Credit Score 

Most people assume that trends in defaulting singularly affect your credit score. Far from it, good credit vs. bad credit depends on more than just one factor.

Here are the most common factors that affect your credit score.

Payment History

Compared to all the other factors, your credit score history is the ubiquitous determinant of a good credit vs. bad credit score. Even one single missed payment could have a major negative implication on your credit score. Lenders depend on your payment history to gauge your ability to meet all your credit obligation. 

For most lenders, your repayment history accounts for at least 35% of the eventual decision to either grant or refuse a credit request.

Credit Utilization

Beyond credit repayment history, most lenders also look at your credit utilization ratio. This ratio results from all your revolving credit by the total of all your revolving credit limits. As such, using more than 30% of your credit is a negative indicator in the eyes of your lenders. 

This is an important factor to consider when assessing your creditworthiness.

Credit Mix

Your credit mix refers to the diverse portfolios in your name. If you have a car loan, credit card, or a mortgage in your name, then it’s easy to gauge your creditworthiness. The assumption is that if you can manage multiple credits, then you can also manage other credits.   

For most lenders, the credit mix accounts for 10% of the FICO score. Even with a credit mix, it’s important always to monitor your credit score. Our experts can help you keep track of your credit score in real-time. 

Your Credit History Length

The length of time you have held your oldest credit matters. What is the age of your oldest credit account? In most cases, the older your oldest credit account, the higher your credit score. 

When looking for credit, it’s important to understand this combination of factors. Most times, lenders will combine all these factors when making a decision. However, experts discourage the application of too much credit within a rather short stint. 

This Is the Difference Between Good Credit vs. Bad Credit

When assessing good and bad credit scores, most Australians don’t understand the differences. A credit score can be the determinant of whether you can access credit or not. On the FICO scale, good credit vs. bad credit depends on four important factors. 

Apart from the repayment history, other factors that lenders consider include the credit mix. Your potential lender will also assess your credit history length and utilization before extending credit. 

Are you looking for a professional team to help you monitor your credit score? Get in touch with us today.

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