Most credit scores – including the FICO score and VantageScore 3.0 – operate within the range of 300 to 850, and a good credit score is typically one that is 700 or above. Within that range, there are different categories, from bad to excellent.
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 600
But even these numbers and ranges aren’t set in stone. Again, that’s because lenders all have their own definition of what is considered a good credit score. One lender that is looking to approve more borrowers might approve applicants with credit scores of 680 or higher.
Another might be more selective and only approve those with scores of 750 or higher. Or both lenders might offer credit to anyone with a score of at least 650, but charge consumers with scores below 700 a higher interest rate!
How Do I Rate?
A good credit score is what each of us aspires to. After all, a credit score is one of the most important determining factors when it comes to borrowing money – and getting a low rate when you do.
But trying to pin down a specific number that means your credit score is “good” can be tricky. After all, there are lots of different credit scores that lenders use when trying to decide whether to grant you a loan.
What one lender may view as a “good” score may fall into another lender’s “fair” credit category. (Not to mention, you may score differently from model to model.)
Luckily, there are broad rules of thumb that can help someone figure out whether their credit scores are good or not. Let’s break it down.
What do Credit Card Companies Look for?
Your credit scores are definitely one of the main things that credit companies look for before extending credit because they are good risk indicators. However, credit card companies will also take a close look at how many reported delinquencies you have, how many hard inquiries were added to your credit file, your overall credit card utilization rate, your annual income, and the health of your credit history.
While several things factor into their decision, if you have an excellent credit score than your chances of being approved are much higher than someone with a much lower credit score. If you have never had a credit card before but want to get one to begin to build and establish credit, then you should check out some of the best credit cards for beginners.
What is a FICO Score?
You have a FICO Credit Score from each of the three major credit bureaus: Equifax, Experian, and Transunion. Each of these credit scores is based on different information that each of the credit bureaus has for you. And as mentioned above, this available information may very well differ from bureau to bureau.
The Fair Isaac Corporation is who has come up with FICO credit scores and subsequently, these scores are used by over 90% of lenders when it comes to providing you with a loan. They are also used when they grant the interest rates, monthly payments, and terms of each loan, and whether you are approved or not.
All the information contained in consumer credit reports is then compared to find patterns, and the resulting FICO credit score is solely determined by what is found on a person’s individual credit file. This information is what will then help estimate the level of future risk there may be if a lender extends to you the offer of a loan or any other type of credit.
Because the FICO credit score can only be determined by information found in the individual’s credit file, it is essential to look over your credit reports each year to find any inaccuracies or discrepancies to ensure that everything is accurate and up to date.
Click here to learn more about how you can obtain your free annual credit reports. As a consumer, you are entitled to one free credit file disclosure from the three major credit bureaus every twelve months.
What is a VantageScore?
A VantageScore is a credit scoring model that emerged over a decade ago and was a joint venture between Experian, Transunion, and Equifax. The VantageScore model is used in comparison and competes with the Fair Isaac Corporations (FICO) scoring model.
When determining if you are a good candidate for a loan or line of credit, a lender will look at your credit scores. Most lenders use FICO scores, but some lenders are starting to look at VantageScores as well to further determine your future financial risk if they were to extend an offer of credit to you.
Both of these scoring models, however, use much of the same information such as the consumer’s payment history, the length and type of credit they have, the amount of their credit usage, and how many recent hard inquiries they have on their credit file.
However, if the extent of your credit history is not lengthy, then you may want to begin closely monitoring your VantageScore because a FICO Score will require a minimum of six months of credit history as well as a minimum of one reported account within the last six months.
The Credit Score Range Scale
There are many different credit scores available to lenders, and they each develop their own credit score range. Why is that important? Because if you get your credit score, you need to know the credit score range you are looking at so you understand where your number fits in. Here are the credit score ranges used by major credit scoring models:
- FICO Score range: 300-850
- VantageScore 3.0 range: 300–850
- VantageScore scale (versions 1.0 and 2.0): 501–990
- Experian’s PLUS Score: 330-830
- TransUnion New Account Score 2.0: 300-850
- Equifax Credit Score: 280–850
With all of the scores listed above, the higher the number, then the lower the risk. With that being said, consumers with higher scores are more likely to get approved for credit than those with lower scores. Additionally, they also tend to get the best interest rates when they do. And they are more likely to get discounts on insurance. What is considered a “high” score depends on what type of score is being used.
If your FICO score is 840, for example, you’re just 10 points shy of the highest score possible, and your credit is “super-prime.” But if you have an 840 VantageScore 2.0, it’s not as spectacular because you’re 150 points away from the highest possible score.
What’s Your Score?
Don’t assume your credit score is good (or isn’t) just because you have always paid your bills on time (or haven’t.) The only way to know whether you have a good credit score is to check.
You can get your credit score free at Credit.com. This is a truly free credit score – no payment information is requested which means no credit card is required. In addition to the number, you’ll also see a breakdown of the factors that affect your score, and you will then get recommendations for making your credit as strong as possible.
What Can I Get With A Good Credit Score?
A good credit score can also get you a lower interest rate when you borrow. That means you will pay less over time. For example, if you’re buying a $300,000 house with a 30-year fixed mortgage, and you have good credit, then you could end up paying more than $90,000 less for that house over the life of the loan than if you had bad credit.
So, in the end, it really pays to understand your credit scores and find what is impacting your credit score and find ways to make them as strong as possible.
How Do I Get a Good Credit Score?
To ensure your credit stays “good” in the long-term, it can help to pick one credit score and monitor your progress over-time. It also helps to pay attention to whatever is being cited as a “risk factor” — for instance, say, the amount of debt you’re carrying is too high — instead of a particular three-digit number.
Addressing whatever is weighing down a single score will likely bolster your standing across scores. That’s because, while the exact credit score ranges may vary, most models are based on the same five categories:
- Payment History (accounts for 35% of most scores)
- Credit Utilization (accounts for 30% of most scores)
- Length of Credit History (accounts for 15% of most scores)
- Mix of Accounts (accounts for 10% of most scores)
- New Credit Inquiries (accounts for 10% of most scores)
So, to build a good credit score or even rebuild credit, you’ll need to make all of your loan payments on time, keep the amount of debt you owe below at least 30% and ideally 10% of your total credit limit(s). You should also maintain credit accounts for the long haul, add a mix of accounts (installment loans versus revolving loans, for instance) over time and manage how often you apply for new credit in a short timeframe.
Components of a Credit Score and the Weight They Carry
Many factors are involved when it comes to determining what a good credit score is or not. Late payments, hard inquiries, and low balance and collections can all be detrimental to the overall health of your credit score. Therefore, it is important to understand the significant weight these components carry.
The Significance of Late Payments
If you find that you have a pretty lengthy history of late and missed payments, then your scores on each scoring model will be negatively impacted by your inability to make payments on time. When determining your score, each scoring model will take a closer look at how recently you have missed a payment or were late, how many accounts were late, and how many total payments on each account were missing or late.
The FICO scoring model will treat each late payment the same and will carry the same weight. However, the VantageScore model will look at each late payment differently which means they may have an even more significant impact on your credit.
Too Many Credit Inquiries
Not many people are aware of the weight that hard inquiries carry on a credit score. Having too many hard inquiries in a relatively short span of time can hinder your credit score, and you will be penalized for multiple hard inquiries on your credit file.
When shopping for an auto loan or mortgage, it’s normal for consumers to shop around to find the best rates. Depending on the scoring model being used, there is a 14-45-day span for these types of inquiries that groups them into only one inquiry. The idea behind this is to give consumers time to shop around, without taking a drastic hit to their scores.
FICO score models allow 30 days, while others allow 45 days. On the other hand, the VantageScore model uses only a fourteen-day span. You can always ask a lender which credit scoring model they’re using when applying for a loan.
The Debt-to-Income Ratio is yet another element that lenders will look at when determining if you are a suitable candidate for a credit account or not. An individual’s debt-to-income ratio is calculated by dividing the total recurring monthly debt they have by their gross monthly income, and in doing so, they will reach a percentage.
You want the percentage of your debt-to-income ratio to be lower. Otherwise, a lender may look at a high number and immediately think you will be unable to successfully make any more monthly payments. You can then be considered a higher credit risk for them.
You will also want to continue to pay close attention to your credit utilization as well. Like the debt-to-income ratio percentage, you do not want your credit utilization number to be above 30%.
Our free debt-to-income calculator can help you find out where you currently stand.
What If I Find a Discrepancy on My Credit Report?
Finally, to ensure that you have the best credit scores possible, you should thoroughly check over the details of your individual credit history to determine if there are any inaccuracies. If you see anything that is not correct, then you should dispute the error.
The credit bureaus Experian, Equifax, and Transunion are required to investigate any disputes that are submitted due to the Fair Credit Reporting Act. However, if the reporting agencies are too quick with the investigation, then the errors may still be on the credit report, and the negative information may still read as accurate.
When disputing any errors on your credit report, always remember to give specific details regarding why you feel the negative information on your credit report is incorrect and include any evidence you may have that helps to prove the mistake.
Always make copies of all the information you send it with your dispute as well, so you have it for your own records.
You can send a letter by certified mail with a return receipt request, so you can document when the dispute was sent and when it was received. Send all your information to the reporting agency that you are asking to investigate the item on the credit report. Making copies of what you send is also a good defense for if they say you never submitted enough evidence to support your claim.
If you follow all the advice and information as outlined in this article, you will have a solid foundation of knowledge to build from when it comes to obtaining and maintaining a good credit score and securing a healthy financial future.