Are you wondering, "What is a good credit score?" and how it impacts your financial life? Dive into this comprehensive guide to learn about credit score ranges, factors influencing your score, and how to improve it for better financial opportunities. Unlock the secrets to a healthy credit standing and gain the upper hand in your financial journey.
Basic Information About Credit Scores
- Credit scores are calculated using the information in your credit reports, which the three major credit bureaus maintain: Equifax, Experian, and TransUnion.
- The credit score range generally falls between 300 and 850, with higher scores indicating a better credit history and lower risk for lenders.
- Lenders may apply specific criteria for credit approval, including using diverse credit models or establishing various benchmarks for what they perceive as a “good” credit score.
- Several credit score models, including FICO® Score and VantageScore, can produce varying scores depending on the specific model and version used.
What Is a Good FICO® Score?
Lenders and financial institutions widely use two major credit score models: FICO® Score and VantageScore. In this section, we'll focus on the FICO® Score.
A Brief Overview of FICO® Score
The FICO® Score, developed by the Fair Isaac Corporation, is one of the most well-known and widely used credit scoring models. It relies on data from your credit reports provided by the three primary credit bureaus: Equifax, Experian, and TransUnion. The score is a benchmark to anticipate your capacity to pay back debts on schedule.
The score considers payment history, amounts owed, length of credit history, new credit, and types of credit used.
A Good FICO® Score
FICO® Scores range from 300 to 850, with higher scores indicating lower credit risk. According to FICO, a "good" credit score falls within the range of 670 to 739.The range represents a good credit history of the borrower, which is a sign that you will always pay your debts on time. This is attractive to lenders.
Industry-Specific FICO® Scores
In addition to the basic FICO® Score, there are industry-specific FICO® scores that range from 250 to 900. These scores are tailored to specific types of credit, such as auto loans or credit cards, and consider unique factors relevant to those industries.Despite this, a "good" FICO® score within a specific industry is still considered to be between 670 to 739. This consistent standard for creditworthiness provides a reliable benchmark that remains the same across various financial fields.
What Is a Good VantageScore?
A Brief Overview of VantageScore
VantageScore is another popular credit scoring model used by lenders to evaluate creditworthiness. Like FICO® Score, it's based on data from the three major credit bureaus. However, VantageScore focuses more on recent credit behavior and takes a broader approach to evaluating creditworthiness. This score considers factors like how much credit you use, the types of credit you have, and how long you've had credit in addition to your payment history.
A Good VantageScoreScores
The first two VantageScore models used a credit score range of 501 to 990, which differed from the 300 to 850 range used by the FICO® Score. However, starting with VantageScore 3.0 and continuing with VantageScore 4.0, the model adopted the same 300 to 850 range as the base FICO® Score.
If your credit score falls between 661 to 780, the VantageScore model considers it to be good. Lenders will see you as a dependable borrower with a lower probability of missing payments, resulting in favorable credit terms.
Credit Score Ranges Explained
Credit score ranges are not unique and will vary according to the calculation formula of different credit score models. However, most models use a 300 to 850 range. The grading description used by credit models is generally the same. Ranges include poor, fair, good, very good, and excellent.：
Basic Credit Score Divisions
Poor: Borrowers in this range face significant challenges when seeking credit, and they may be denied credit altogether or face very high-interest rates.
Fair: Borrowers with fair credit scores may qualify for credit but are unlikely to receive the most competitive rates or terms.
Good:
Good credit scores suggest that borrowers are less likely to pose a credit risk. Borrowers whose scores fall within this range have a greater chance of being granted credit and may receive better loan terms than those with lower scores.
Very good: Very good credit scores indicate a strong credit history and responsible borrowing habits. Borrowers in this range are more likely to receive competitive interest rates and favorable terms.
Excellent: These scores clearly indicate responsible financial behavior and a borrower's ability to manage credit effectively. Borrowers with excellent credit scores are usually eligible for the most favorable loan terms and interest rates when applying for credit.
FICO® Score 8 Credit Score Ranges
300 to 559: Poor
580 to 669: Fair
670 to 739: Good
740 to 799: Very good
800 to 850: Excellent
Industry-Specific FICO® Score 8 Ranges
250 to 579: Poor
580 to 669: Fair
670 to 739: Good
740 to 799: Very good
800 to 900: Excellent
Similar to the base FICO® Score 8 range, the indications for industry-specific FICO® scores have not changed much. It's just that they're tailored to specific industries, such as auto loans or credit cards. While the categories (Poor, Fair, Good, Very good, Excellent) remain the same as the base FICO® Score 8, the range is between 250 to 900.
VantageScore Credit Score Ranges
300 to 549: Very poor scores.
550 to 649: Poor
650 to 699: Fair
700 to 749: Good
750 to 850: Excellent or super prime
What is a Good Credit Score According to Lenders?
Lenders use credit scores to determine a borrower's capability to repay debts and manage credit responsibly, but the definition of a good credit score varies between institutions based on their exceptional standards. This means that the score ranges that different lenders consider to be good, very good, or excellent may differ.
For example, a particular lender might consider a credit score above 720 to be excellent, while another may require a score above 750 for the same classification. These standard variations can affect the interest rates, credit limits, and terms offered to borrowers.
It's crucial to note that credit scores are just one factor that lenders consider when evaluating loan applications. Other factors, such as income, employment history, and debt-to-income ratio, can also significantly influence the lender's decision-making process.
To conclude, the definition of a good credit score varies depending on the lender's specific criteria and evaluation process. What the borrower has to do is to maintain a good credit history and a credit score as high as possible. This is how you get favorable credit terms from each lender.：
What Factors Impact Your Credit Score?
Common Factors Influencing Credit Scores
Payment History
Your payment history is a crucial factor that influences your credit score. Making timely payments on your credit accounts shows that you are a trustworthy borrower and can positively affect your credit score. However, making late or missed payments may harm your credit score, especially if they occur regularly.
Credit Utilization
Credit utilization refers to the percentage of available credit you use at any given time. A lower credit utilization ratio is better for your credit score, indicating you manage your credit responsibly. Aim to keep your credit card balances below 30% of your credit limits to maintain a healthy credit utilization ratio.
Length of Credit History
The length of your credit history is also considered when determining your credit score.
Moreover, maintaining a long credit history and a good credit mix shows your ability to manage your credit with different loan situations.
New Credit Applications
Applying for multiple new credit accounts in a short period can negatively impact your credit score, as it may suggest financial distress or a higher risk of overextending yourself. Limit your credit applications and only apply for credit when necessary.
Regular Credit Report Checks
Regularly checking your credit reports allows you to identify any errors or discrepancies that could harm your credit score. You can promptly correct any issues and maintain an accurate credit profile by monitoring your credit reports.：
Factors Excluded from Credit Score Calculation
Credit scores do not consider certain personal information in their calculations, such as:
- Your race, color, religion, national origin, sex, or marital status
- Your age
- Your salary, occupation, title, employer, date employed, or employment history
- Where you live
- Soft Inquiry: Usually occurs when checking credit scores or pre-approval
These factors are excluded from credit score calculations to ensure fairness and prevent discrimination in the lending process.
Advantages of Having a Good Credit Score
A good credit score can open up many opportunities and provide numerous benefits. Here are some of the advantages that come with having a good credit score:
Lower Interest Rates:
If you have a good credit score, it may enable you to qualify for lower interest rates on credit cards and loans. When you have lower interest rates, the amount of money you need to pay in interest over the loan's lifespan decreases significantly, leading to long-term savings.
Greater Credit Eligibility:
A good credit score makes you more likely to be approved for credit products such as loans, credit cards, and mortgages. Lenders view applicants with good credit scores as lower-risk borrowers, making them more inclined to extend credit.
Higher Credit Limits:
A good credit score can also result in higher credit limits, allowing you more flexibility and access to funds when needed. With responsible credit management, you are more likely to get higher credit limits from lenders.
Better Insurance Rates:
Insurance companies often use credit scores to help determine the premiums they charge for auto and homeowners insurance. If you have a good credit score, you can get lower insurance premiums, which can help you save money on insurance expenses.
Quicker Rental and Leasing Approval :
Landlords and property managers often use credit scores as part of their tenant screening process. A good credit score can make it easier for you to be approved for a rental property or lease agreement.
Better Employment Opportunities:
It is common for employers to review credit reports when evaluating job candidates. With a good credit score, you can show potential employers that you are financially responsible. This may increase your chances of being hired.
Tips for Building and Maintaining a Good Credit Score
You'll need to demonstrate responsible credit management habits over time to get a good credit score. Here are some steps you can take to improve your credit score:
Pay your bills on time, every time:
Your payment history is the most significant factor in your credit score. Be sure to pay all bills promptly, including loans, credit cards, and utilities, as late payments can harm your credit report.
Limit credit utilization to 30%:
Credit utilization refers to the percentage of your available credit that you're using. Aim to keep your utilization below 30% to show lenders that you're not overextending yourself financially.
Maintain a mix of credit types:
A diverse mix of credit types, such as credit cards, installment loans, and mortgages, can positively impact your credit score. Nevertheless, it is not recommended to pursue additional credit solely to diversify your portfolio.
Avoid excessive credit applications:
Applying for multiple credit products quickly can temporarily lower your credit score. Limit the number of new credit applications and only apply for credit when you genuinely need it.
Check credit reports regularly:
Reviewing your credit reports regularly is a wise choice to identify any errors or fraudulent activities in time. To get your annual credit report for free, visit AnnualCreditReport.com, which offers reports from the three major credit bureaus (Experian, TransUnion, and Equifax).
How Long Does It Take to Get a Good Credit Score?
The time it takes to achieve a good credit score depends on your starting point and your financial habits.：
If you're starting with no credit history, establishing a credit score can take six months to a year. However, if you're rebuilding your credit after a negative event such as bankruptcy, it may take several years to see significant improvement.
You don't need to rush to improve your credit score. This gradual process requires patience and a commitment to responsible financial behavior. Plus, it will benefit your financial life if you keep building and maintaining it.
What to Do if You Don't Have a Credit Score?
Point out that credit scoring models use your credit report to determine your score
For example, for FICO® Scores, you need:
- Account for at least six months
- Accounts that have been active for the past six months
- If VantageScore has at least one active account, it can score your credit report even if the account is only a month old.
If you are unscorable, you may need to open a new account or add a new activity to your credit report to start building credit.
There is no credit report or score if you have never established a credit history. Because credit scoring models like FICO® Scores and VantageScore require information from your credit report to calculate your score.
To establish one, you'll need to create a credit history through the responsible use of credit products.
For FICO® Scores, you'll need the following:
- An account that has been open for at least six months
- Accounts that have been active for the past six months
For VantageScore:
It is enough as long as you have an active account on your credit report, even if it is relatively new, such as a month old.
If you don't have a credit score, here are some steps you can take to start building your credit:
Get a secured credit card:
A secured credit card requires a cash deposit as collateral, which serves as your credit limit. You can establish a favorable credit history by responsibly utilizing the card and paying off your monthly balance in full.
Consider a credit-builder loan:
Credit-builder loans are designed to help you establish a credit history. With this loan, you must deposit money into a designated account monthly. Lenders will report your on-time payments to the credit bureaus. After completing the payment, you will have a credit record on your credit report.
Become an authorized user:
Ask a family member or friend with good credit to add you as an authorized user on one of their credit cards. As an authorized user, you'll benefit from the primary cardholder's good credit habits, which can help you establish your credit history.
Choose a rent-reporting service:
To build your credit history, you can report your rent payments to the credit bureaus with rent-reporting services.
How to Manage Your Credit Score?
To effectively manage your credit score, staying informed and monitoring your credit regularly is essential. Focusing on these two aspects will help you maintain a good credit score and enjoy the benefits that come with it:
Check your credit score regularly:
Make a habit of checking your credit score at least once every few months.You can often get free credit scores from card issuers, banks, and financial institutions to help you monitor your score easily. Besides, by checking them regularly, you can find and solve any negative changes in time.
Monitor your credit report:
In addition to checking your credit score, it's crucial to review your credit report regularly. Every year, you can request a free copy of your credit report from each of the three major credit bureaus – Equifax, Experian, and TransUnion.
A timely check can help you verify your credit history and catch errors or evidence of identity theft. You should promptly report any errors or inconsistencies to the credit bureaus to protect your credit score.
Understanding Bad and Poor Credit Score Ranges
A bad or poor credit score can limit your financial opportunities and make it difficult to access credit. Let's take a closer look at these two credit score ranges and the challenges they present.
What is a Bad Credit Score Range?
A bad credit score falls within the range of 300 to 549. Credit scores in this range are often seen as high-risk by lenders, and as a result, borrowers with bad credit scores are likely to face rejection when applying for credit.Those with bad credit scores must dedicate time, effort, and commitment to improving their credit standing.
Filing for bankruptcy can cause a credit score to plummet into this range. Borrowers with bad credit scores tend to be delinquent about 75% of the time. You need to make timely and consistent payments to restore your credit score. But a bad credit score doesn't mean you can't get a loan. Aside from challenges like a mortgage, there is still a chance you can get a loan.
What is a Poor Credit Score Range?
A poor credit score ranges from 550 to 619. Your credit risk is higher if you have credit delinquencies, account denials, and limited credit history. Lenders will classify you as a subprime borrower. While it's still possible to qualify for credit with a poor credit score, the terms are often unfavorable, resulting in higher interest rates and penalty fees.
For poor credit score ranges, the first thing to do is address any specific credit issues you have and work on improving your credit score. Then you can apply for a loan. By taking proactive steps to improve your credit, you can increase your chances of securing better credit terms in the future.
FAQs：
How Does a Credit Score Affect Car Loan Applications?
A good credit score for buying a car is usually around 700 or higher.：
However, having a credit score under 700 may lead to queries about negative credit history when shopping for a car. While car loans are still available for those with less-than-perfect credit, preferred interest rates may not be offered. It's important to research the interest rates you can expect with your credit score.
What Do Landlords Seek in Apartment Credit Checks?
When renting an apartment, landlords or property managers typically focus on your overall credit history rather than a specific credit score. They seek evidence of responsible bill payment and financial management. Researching rental application processes and requirements can provide insight into what landlords look for in a credit check.
Is 700 a Good Credit Score?
Yes. Typically, a credit score of 700 is deemed good, increasing credit approval chances. However, in determining credit eligibility, lenders may consider other variables besides the credit score.
Louis Baker started his career in 2017 by contracting with Experian. He also became a part-time content creator in various fields such as insurance, personal finance & investment, etc.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here’s how we make money.