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Debt Management Guide 2008
Joys of good credit
Good credit can improve your financial health in a lot more ways than most people realize.
Joys of good credit
Have a good credit score? Push it higher


Even if you already have a good credit score, it may be worth it to continue to improve your number.

If you're one of the millions of Americans who still have good credit, congratulations. You're likely getting great offers on mortgages, home equity loans, lines of credit, credit cards and auto loans. Heck, your car insurance is probably cheaper, too!

Still, it might be to your advantage to bump that score up just a few extra points. While an even higher credit score can't always assure you a better deal, it can't hurt. And there are ways that even incremental gains can make an impact.

Know more about your score
No matter what score you've earned, it's important to know what system was used to get your score -- and what it means. Changes in the credit score world may require a quick review.

FICO scores. When most people think of credit scores, they probably think of the FICO score, a scale developed by the Fair Isaac Corp. Variations of the algorithm are used by the three major national credit bureaus to come up with a number that fits in a rough range of 300 to 850, which helps lenders assess how risky it is to loan money to you.

While the definition between good credit and great credit varies, you can safely assume you're in the top tier if you've got a score of 770 or above. The ranges vary greatly, however, so a score of 700 may be considered just as good as 770 to some lenders.

Vantage scores. This scoring system, introduced a few years ago, is intended to simplify and standardize scores across the three bureaus -- Equifax, Experian and TransUnion. One of the problems with FICO scores is that each credit bureau uses a variation of the formula, which means that even if the exact same information is provided to each bureau, they may still come up with different scores. So, the three bureaus agreed to use the same methodology to compute Vantage scores, which should provide more consistency.

The Vantage scores, which range from 501 to 990, are associated with a letter grade from A to F, which will help consumers get a handle on where their credit stands. (901 and above is an A; letter grades drop at hundred-point intervals.)

"Essentially, it's just another way of stratifying things," says Cate Williams, vice president of financial literacy for Money Management International. "The basic elements of a credit scoring system are going to be the same."

In other words, if you have a good FICO score, you're likely to have a good Vantage score. If you have a poor FICO score, it will be reflected by the Vantage score as well.

Expansion scores: This is another relatively new offering in the credit scoring realm, provided by Fair Isaac. If you're new to the world of credit, an Expansion score evaluates financial relationships that aren't usually considered in a traditional credit score.

"This system gives a fair shake, computationally, to people who don't have a long credit history," says Boyce Watkins, finance professor at Syracuse University. The scores have the same range as traditional FICO scores.

-- Updated: June 16, 2008
 
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