What is "good credit" or "bad credit"?

To most people, good or bad credit is simply a history of paying or repaying their obligations in full and on time but to a lender, good credit means a FICO score above 670.

Banks, credit card issuers, all lenders, as well as utility companies and many other businesses report your payment history to one of several credit bureaus. The leading credit bureaus are Equifax, Experian (formerly TRW), and Trans-Union. Credit bureaus sell reports about past credit performance of both individuals and businesses to authorized agencies, usually lenders.

Credit bureaus use statistical models that consider various credit factors to determine credit ratings. These models generate a number, commonly called a credit score or FICO score, which provides lenders with a reliable starting point for making decisions about lending money.

What does your credit score mean? Credit scores range from about 375 to 900, higher is better. Anything above approximately 670 is considered good credit. Borrowers with good credit are able to get the best financing rates and terms that are currently available to the general public, “prime rates.” If your score is below 620, you will usually pay a higher rate for your mortgage, and your credit is considered “sub prime.”

Lenders generally classify borrowers into the categories shown below, based on their credit scores. Remember: these categories are guidelines, not fixed numbers. The categories vary slightly from lender to lender, for example a credit score of 620 could be a “B” with one lender and a “C” with a another lender. Also, the data underlying the credit scores is constantly being updated so the scores can vary from day to day. The lower your score, the bigger a risk you appear to be to a lender, so your financing choices become more expensive and restricted.

Each lender uses their own underwriting guidelines. In an A- or an E lending scenario, dozens of factors are considered. The best way to insure you receive the best terms for your loan is by shopping among several lenders.

Credit Rating	Credit Score
A+	670
A-	660
B	620
C	580
D	550
E	520

How do you determine your credit score? If you've recently applied for a loan, the lender undoubtedly acquired a credit report for you. Although they are under no obligation to share your credit score with you, they often will upon request. Another way is to simply order a copy of your credit report.

Are loan programs available for people with a less than perfect credit history or those with extremely poor credit? Absolutely! These are called subprime loans and it's a fast growing market segment for lenders.