Credit scores are determined by your lifelong history of debts and payments, as well as by the amount of overall debt you carry versus your income. Your score is the one place all lenders and creditors look to find out how desirable you are as a customer. A borrower with excellent credit will find many more doors open than will someone with lesser credit.
The quality of your credit score is ultimately determined by the lender who is referencing it. Since each lender develops its own standards by which to judge applicants, the term "excellent" is somewhat subjective. In most cases the magic number is 700. Anything above 700 is at least good in the eyes of most creditors, and it might be considered excellent, depending on a creditor's internal requirements. The general consensus is that 760 starts the "excellent category," and it goes up from there. The industry standard can rise or fall according to the state of credit in the country as a whole, so the rule is never set in stone.
On most loans, a score less than excellent does not immediately exclude you from consideration when you apply. Instead, a lower than perfect score might result in a higher interest rate, more points due, or the need for a larger down payment than someone with excellent credit would pay. Even an applicant with very good credit will be less attractive to lenders than one with top-tier credit. The differences in the deals they are able to broker can be significant when it comes to the overall cost of a loan.
Benefits of Excellent Credit
Applicants with excellent credit not only are more likely to be approved for loans and credit cards, they often are provided with benefits that others don't receive. Most credit card companies have special cards reserved for top-tier clients as a recognition of their responsible use of credit and their increased buying power. Some of the exclusive benefits you can expect to receive include fewer fees, lower interest rates, higher limits, and more cash back. Higher-level cards also tend to offer extra services, travel insurance, and dedicated customer-service personnel to deal with any cardholder problems.
To bring your credit score into the realm of excellent you not only need to pay all your bills on time, you also have to avoid doing little things that could lower your credit score. For example, most people don't know that closing a credit card account, even if you have paid it in full, will show as a negative on your report. If possible, limit the amount of credit you use to around 10 percent mark of the amount of credit you have to spend. In other words if you have a credit card with a $10,000 limit, don't carry a balance of more than $1,000 if you wish to keep the debt-versus-credit formula at its most beneficial to you.
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- CNN: The Magic Number for Getting a Loan
- Forbes: The New Credit Score Rules
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- Forbes: Excellent Credit Deserves an Excellent Card
- Bank Rate: Good Credit Score of Past Not So Good Now
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