If you are an adult living in the United States, there is a 99.9% chance that you have a credit record. Even if you have never taken out a loan, applied for a credit card or purchased a vehicle, you’ll still have a record with at least some information about your financial activities. Even something as routine as getting phone service turned on can leave a trace.

In today’s society, one’s credit record can have a profound effect on life. Banks and other lenders view your credit record as an indication of your trustworthiness when it comes to finance. A detailed formula is used to analyze your credit history and assign a number, called a credit score. This is the number that lenders use to decide the interest rate and other terms they will offer you when you apply for a loan. Even something as simple as getting cell phone service can be affected by your credit score. For these reasons it’s important to not only know what a credit score is but also to know what is considered a good credit score and how to get yours to that level.

Credit scores were first developed by the Fair Isaac Corporation of California (FICO) and credit scores are still often referred to as a FICO score. FICO used several indicators of past financial performance to develop a system of rating a person’s likeliness to comply with loan terms. It soon became the gold standard of assessing one’s credit worthiness. All three of the major credit reporting bureaus use the FICO score today in their reports.

In its simplest form, credit worthiness is an assessment of one’s ability to make payments on time. Since a lender doesn’t know a borrower personally, they need some assurance that they can trust the borrower to repay the loan according to the terms. A person’s track record over an extended period of time is the best indicator of such trust worthiness. Lenders establish guidelines for borrowers with certain credit scores that they use to decide loan approval and conditions. Therefore, a borrower must know what a lender considers a good credit score in order to make sure they get the best terms possible.

The lower one’s credit score, the higher the interest they can expect to pay. This is a form of insurance for lenders. Since so many people with low credit scores default on loans, the lenders try to hedge their losses by charging more for risky borrowers. Though this may seem unfair to charge the highest rates to those least able to afford them, from a business standpoint it makes perfect sense. After all, people who have been financially responsible should not be penalized for those who have not.

Though it varies depending on the type of loan and the lender, a good credit score is generally considered anything over 600. If you have a score above 700, you have excellent credit and should demand low interest rates. If your score is below this, you can raise it by ensuring that all your bills are paid on time. Make sure that any outstanding debts are current and be conservative in applying for new credit. Keep balances on credit cards at a moderate level compared to your income. If you do these things consistently, you’ll soon have a score that will get you the best deals possible on loans.

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