What is a good credit score, and why is it so important to know your score? If you know your score, you’ll be able to see how you look in a lender’s eyes. The credit score is a financial history of your bill-paying habits and the amount of debt you carry. It is compiled into a number that lenders use to compare and contrast with others in order to determine credit worthiness.

How Your Credit Score Is Figured
Three major credit bureaus calculate credit—Experian, Equifax and Transunion. A FICO score (from the Fair Issac Corporation) is compiled from these reports from lenders to the credit bureaus. The score, a three-digit number, is based on a compilation of several conditions. Generally, 30 percent of the score has to do with the amount of debt you owe. Around 35 percent reflects your payment history, while 15 percent reflects the longevity of the accounts. New credit and types of credit each receive 10 percent of the consideration. These percentages are compared to others with credit history and then ranked. You can check your credit score information for free once each year, but it costs a small fee if you need to check it again.

Number Scale
In general, lenders follow a sliding scale of credit scores that determine how attractive a borrower is to a lender. The FICO scoring system breaks it down this way:

Poor
499 and Lower: This score means that you will be subject to some of the highest interest rates out there, if any lender will even agree to working with you. It’s a good idea to take some drastic steps to increase the score.

500 to 580: A score in this range generally means that you are in need of some major credit repair strategies. Many lenders will charge high interest rates for your loans and many will deny you based on a score like this.

Fair
580 to 619: With 620 as the cutoff for a prime interest rate, lenders will still subject you to higher interest rates. However, with a little effort, you may be able to boost your score up within 6 months or so to qualify for better rates.

620 to 679: This is the minimum level that lenders want to see to qualify for prime or good rates. Be careful, however, because a few bad credit moves could plunge you down to the lower ranks.

Good
680 to 699: Solid financial history combines with current payments to give you a good credit score that qualifies you for the best interest rates the lenders have.

700 and Higher: This excellent score means you can pick and choose your interest rate from among the lender’s very best.