What Is a Great Credit Rating?

Credit ratings affect how lenders treat borrowers -- what types of loans they approve, what interest rates they give, and how willing they are to negotiate for different terms. Because credit ratings are so important, both creditors and borrowers spend time considering what goes into a rating and what makes a rating bad or good. For a simple number like a credit score the answer is fairly simple, but for a more complicated credit report the details can be very important.

Credit Scores

The most widely used credit score is the FICO score. Its formula is closely guarded, but different actions, like opening a new account or paying off a mortgage, are weighted differently. Generally, anything above 800 is a great credit score. A score of 840-850 is considered the highest score, but it is very difficult to achieve these ratings. A score in the 700s may be considered good as well.

Credit Rating

Some lenders will look only at the FICO score when making their credit decisions. Others will examine different parts of the credit history of the borrower by ordering a full credit reporting. A credit rating is a more general term that combines the effects of the report and the score into one idea of a borrower's financial status. A credit report can show many things that a credit score cannot. Lenders look for signs that the borrower made wise credit decisions and kept healthy balances in credit accounts. The types of loans the borrower had in the past also serve as an important indication of financial habits.

Improving Credit

Borrowers are not stuck with a particular type of credit rating. Instead, they can improve their credit even after it falls by making continual, reliable payments on all their accounts. It is this long-term reliability that has the most influence in raising a credit score. Borrowers should also be careful opening new accounts, which can temporarily lower a credit rating. Missing payments in any way will have a detrimental effect, so borrowers should follow a strict budget.

Other Factors

A great credit rating does not always mean that the borrower will qualify for a better loan or a reduced rate. Lenders tend to look at the larger picture, especially for large loans like mortgages. Good credit does not mean the borrower has a cushion of cash in accounts in case of job loss. A low income may indicate that the borrower has excellent credit with current debt, but cannot handle any future debt easily.