What Is a Good Credit Score?
-
Written by
Josephine Nesbit
Your credit score is a prediction of how likely you are to pay back a loan on time based on your credit reports compiled by the three major credit bureaus – Equifax, TransUnion and Experian. While there are many different kinds of credit scoring models, the FICO model is the most widely used.
The FICO credit scoring model ranges from 300 to 850. The higher the number, the better your credit score. Generally, a credit score of 670 to 739 is good, but most lenders have their own criteria for what they consider good credit.
What’s a Good FICO Score?
FICO considers a credit score between 670 and 739 to be “good.” Here are FICO’s credit score ranges.
| Credit Score Ranges | FICO Rating | Description |
|---|---|---|
| <580 | Poor | Borrowers in this range are considered risky and may not qualify for new credit. |
| 580-669 | Fair | This range is still risky, and borrowers may have difficulty qualifying for new credit. |
| 670-739 | Good | Borrowers are lower-risk and most lenders consider this a good credit score. |
| 740-799 | Very Good | This range is above average and shows lenders that the borrower is creditworthy. |
| 800+ | Exceptional | This range is the lowest risk, and borrowers may have an easier time securing a loan with the best interest rates and loan terms. |
While 90% of top lenders use FICO, it isn’t the only credit scoring system. FICO primarily focuses on:
- Payment history
- Credit utilization
- Length of credit history
- Credit mix
- Credit inquiries
Other scoring models may look at other factors and assign them different weights. For example, VantageScore – another common system – weighs payment history, credit usage and other factors differently.
Factors That Determine Your Credit Score
There are many factors that go into determining your credit score. Let’s take a look at the factors that make up your FICO credit score and how they’re weighted.
1. Payment History
Payment history makes up 35% of your FICO score, the largest portion of your credit score. On-time payments can help boost your credit score, while late payments can drastically lower it.
According to FICO, payment history is the most important factor because the first thing lenders want to know is whether you’ve paid your loans on time.
2. Credit Utilization
Credit utilization is the percentage of credit used from the total credit available to you. Having a balance on your credit cards or loans doesn’t necessarily hurt your credit score, but if you use a large portion of your available credit and are near your credit limit, this may indicate that you’re overextended.
Credit utilization makes up 30% of your FICO score, and the general guideline suggests keeping your utilization ratio at or below 30%.
3. Length of Credit History
Having a longer credit history typically looks better to lenders. In FICO’s scoring model, it makes up 15% of your credit score. Scoring models usually take into account how long your credit accounts have been established, the age of your oldest account, the age of your newest and the average account age.
It also considers how long specific credit accounts have been established and how long it’s been since you used certain accounts.
4. Credit Mix
This makes up 10% of your FICO score. Having a mix of credit may potentially show lenders that you can responsibly manage different types of debt. Different types of credit include:
- Credit cards
- Retail accounts
- Mortgage
- Installment loans
5. Recent Credit Inquiries
Opening several new credit accounts in a short period of time can be an indicator that you’re a greater risk, especially for those who don’t have a long credit history. This category makes up 10% of your FICO credit score.
Why a Good Credit Score Matters
A good credit score means lenders see you as lower risk. This can help you in several ways:
1. Lower Interest Rates on Loans and Credit Cards
Higher credit scores generally qualify for lower interest rates on loans, like mortgages and car loans.
A good credit score shows you’ve paid your bills on time and kept your debt low. As a result, lenders are more willing to offer you a better rate. This could potentially save you thousands of dollars over the loan term.
2. Easier Approval for Rentals and Mortgages
Renting an apartment or qualifying for a mortgage may be more difficult if you have a poor credit score.
Most landlords and mortgage lenders look for a credit score of 620 or higher, but it may depend on the property and the type of loan.
3. Better Job Prospects in Certain Industries
Employers may run a credit check to gauge your ability to handle money and get a better understanding of your reliability.
In most cases, your credit score won’t impact your ability to get a job. That is, unless, you’re applying to financial or management positions or one where you handle sensitive information.
4. Enhanced Credit Card Rewards and Benefits
While there are rewards credit cards for those with poor or fair credit scores, the best cards usually require a good to exceptional score.
The higher your credit score, the more likely you are to qualify for credit cards with better rewards programs, cash-back rates, bonus points, travel perks and more.
What Is the Highest Credit Score?
The highest or “perfect” FICO credit score is 850. It’s possible to achieve, but difficult. According to Experian, 1.54% of the U.S. population has a FICO score of 850. People with perfect credit scores typically have lower debt balances across the board, credit utilization near zero, no delinquencies and a lengthy credit history.
You don’t need an 850 FICO score to get the best interest rates. Scores within the exceptional range of 800 and over often see the same rates and terms as those with a perfect credit score. Getting to that range involves:
- Having a long credit history
- Excellent payment history
- No or few delinquencies reported
- A credit utilization ratio under 30%
- A diverse credit mix
- Limited new credit inquiries
Tips to Achieve and Maintain a Good Credit Score
You can achieve and maintain a good credit score by following these tips:
1. Regularly Monitor Your Credit Report
It’s good practice to check your credit report with the three major credit bureaus on a regular basis. This can give you a better idea of where your credit stands. It also gives you the opportunity to look for inaccuracies or errors and dispute them if necessary.
2. Always Pay Bills on Time
Make all payments – credit cards, mortgage, car loan, etc. – on time.
2. Reduce High Balances on Credit Cards
Keep credit card balances well below 30% of your available credit limit. One of the best ways to pay off debt is to pay more than the minimum required each month.
You can also consolidate your debt by taking out a new loan to pay off multiple loans or you can complete a balance transfer. This can help simplify your finances it make debt repayment more manageable.
3. Avoid Closing Old Accounts Too Quickly
Closing accounts can lower the average age of your accounts, increase your credit utilization and limit your credit mix. This can hurt your credit, especially if you’ve had the account for years.
Common Misconceptions About Good Credit Scores
One common misconception is that checking your credit score can hurt your credit. Checking your credit score counts as a soft inquiry, which doesn’t affect it at all. By law, you can get a free credit report each year from the three credit reporting agencies. Another option is AnnualCreditReport.com, the only website authorized by the federal government to issue free credit reports.
Another myth is that it’s not possible to have a good score with minimal credit history. Length of credit history only makes up 15% of your FICO credit score. Making on-time payments and low credit utilization will have a bigger impact.
How to Recover from a Poor Credit Score
If you have a less-than-desirable credit score, you can still recover. Here are some steps you can follow to rebuild credit after a setback.
1. Check Your Credit Reports
Request free credit reports from Equifax, Experian and TransUnion and review for errors, inaccuracies or accounts that don’t belong there. Dispute any incorrect information with the credit bureaus.
2. Catch Up on Delinquent Accounts
Prioritize any overdue bills and bring payments up to date. Consider negotiating with creditors to settle or create a payment plan for overdue debts.
3. Pay Bills on Time
Payment history makes up a large part of your credit score. Focus on making timely payments each month.
4. Pay Down Existing Debts
Pay down debt and keep your credit utilization ratio below 30%.
5. Consolidate Debt With a Balance Transfer or Loan
Consider a balance transfer or loan to consolidate your debt. This can potentially help you save money on interest and simplify debt repayment.
6. Become an Authorized User
Ask a family member with good credit to add you as an authorized user on their credit account. Having an on-time payment history can help improve your credit score.
7. Avoid Hard Inquiries
Opening a new credit card account or applying for a loan results in a hard inquiry, which can hurt your credit score.
8. Ask for Higher Credit Limits
You can potentially decrease your credit utilization if you request a higher credit limit. It is important to note that this will typically require a hard credit pull.
There’s no quick fix to improving your credit score. How long it takes depends on your credit issues and what caused your credit score to drop. It could take as little as a few months, but in some cases, it could require several years.
Frequently Asked Questions
A good credit score means you’re more likely to be approved for credit cards and loans with low interest rates and good repayment terms. Here are the answers to the most frequently asked questions about a good credit score.
What is a good credit score by age?
A good credit score is typically 670 or higher, regardless of age. Anyone at any age can build a good or exceptional credit score.
What is a respectable credit score?
A respectable credit score is 670 or higher, which is a “good” FICO credit score. A credit score between 740 and 799 is “very good” and 800 and higher is “exceptional.”
What is a good credit score to buy a house?
A good credit score to buy a house is 620 or higher for a conventional mortgage. However, a better credit score may qualify you for lower interest rates and terms.
What’s the difference between a credit report and a credit score?
A credit report is a statement with all information about your credit activity. Your credit score is calculated based on the information in your credit report.
Can you improve your credit score quickly?
You can improve your credit score relatively quickly by making on-time payments and paying down debt balances. How quickly you can improve your credit score also depends on whether you have any credit problems.
How often should you check your credit score?
It’s recommended to check your credit report at least once per year. This can help you identify and fix any issues.
