How to Tell a Good Credit Score from a Bad One

Good credit score ranges (for example, a FICO score of 760 to 850) change over time as the history of the population changes. This refers to your personal history of using credit and paying bills.

During the aftermath of the most recent recession, the poor economy, high unemployment, and punishing defaults and foreclosures have caused a lot of people who had high scores to move much lower on the scoring ladder. While scores seem to be returning to pre-recession levels, yours may be ahead of or behind the trend.

So is your score a good one? What’s a good score, anyway? Essentially, a good score is one that’s good enough to get you what you want at a price you can afford.

FICO likes to give you a picture of where you stand in comparison to others using an eight-bar graph and an eight-column chart.

Another useful way to understand score dynamics is to look at score movement over time. Take a look at the scores of different pockets of consumers between October 2011 and October 2012. It’s hard to move out of the bottom tier. Six out of ten people in the bottom tier of 300–499 stayed there, while nearly eight out of ten people in the top tier stayed on top.

While it may be hard to move your score, 30 percent managed to move up a tier to 500–549. What’s the best way to do so? With a plan and over time! As you can see, anyone who claims that they can turn your credit score around overnight is not telling the truth.

Credit: Courtesy of FICO

In the current credit environment, where lending is fairly tight, the difference in loan terms between a score of 750 and a score of 800+ (the top two groups) may be small, but those with a score of 650 or lower may not be eligible for credit at all. However, not all lenders view risk the same way.

One lender may consider a credit score of 650 to be a high risk, while another lender may not consider such a score to be all that risky and may have a special program to take advantage of — er, accommodate — lower-scoring consumers.

A bad credit score and history can make you a target for unscrupulous lenders. If your credit is damaged, read the fine print on any credit agreement carefully and understand all fees, penalties, and interest rates before you act.

So how high is high enough? In a time of relatively easy credit, such as before the last recession, the saying was that all you needed was a pulse to get a loan. Although this may not have been entirely true, getting a loan with a lower score in good times was certainly easier than it is today.

The credit market has tightened up since the most recent financial crisis and is only beginning to loosen up. Over time, the standard for lending tends to swing like a pendulum from easy to tight and back again. So keeping your credit as clean as you can is extremely important, because today’s record will be there for at least the next seven years, while tomorrow’s credit market will surely change.