What Is A "Good" Credit Score?
Updated August 21, 2018
You probably already know your credit score is an important factor for being granted loans or taking out a new credit card, but you proably have many questions regarding your credit score -- including what exact number is considered good.
Below, we break down all the frequently asked questions on everything regarding your credit.
What Is A Credit Score?
A credit score is a number that shows creditors and lenders how reliable you are at paying off your debts. Your credit score allows lenders to decide if -- and how much -- credit they extend.
Credit scores (which are also known as a risk scores) are not determined by your bank, credit card companies, or lenders. Instead, they are provided by a third party entity.
There are many different credit scores but the ones that most people refer to are your FICO® scores, which are based on information from the three major credit reporting bureaus: Experian, Equifax, and TransUnion.
These scores are based on your payment and credit information. While each score varies, they should fall into a similar range.
Why Is A Good Credit Score So Important?
Credit scores are incredibly important for consumers since they greatly affect your finances. Along with determining your creditworthiness, these scores have many purposes:
- Banks and credit card companies use these scores to decide if they are willing to extend loans for you.
- A good credit score allows you to have a much lower interest rate on loans.
- They are occasionally used by companies when hiring new employees since steady payments show dependability.
- With a good credit score, you are eligible for lower interest rates on loans. (However, if you have a bad credit score, you can still find loans with less competitive interest rates.)
- A good credit score also helps you when renting an apartment, since your initial deposit may be lower if you have a high credit score.
- Your cell phone service bill can also be based on your credit score.
Your credit is taken into account for each financial decision you make, often to determine the type of loans and terms you receive.
Lenders examine the amount of debt you have, your debt to income ratio, the type of loan, your debt history, and any derogatory marks.
Why Is My Credit History Important?
Your credit history determines your credit score and takes the following into account: the length of your credit history, your payment history, your total amount of debt, and the amount of available credit.
Lenders use this information to determine whether or not they will extend a loan to you.
What Factors Affect My Credit Score?
Depending on the type of credit scoring model you are using, your credit score may be affected by factors such as:
- Credit utilization
- Payment history (on time or late payments)
- Type of credit accounts
- Number of credit accounts
- Age of credit accounts
- Recently opened credit accounts
- Total debt
- Tax Liens
- Civil judgments
- Inquiries on your credit report
FICO® grades your score on these factors (from most important to least important):
- Payment history on loans and credit cards
- Total debt owed
- Credit history length
- New credit accounts
- Types of credit accounts
VantageScore grades your score on these factors (from most important to least important):
- Payment history
- Age/type of credit and credit utilization
- Total balances and amount of debt
- Hard inquiries, available credit, and recent credit-related behavior
Factors that are not considered when determining your credit score, as outlined by the Consumer Credit Protection Act:
- Marital status
- Inquiries for employment reasons
- Checking your credit report
- Lender credit requests
Although this does not affect your credit score, lenders may consider the following when deciding whether or not to extend a loan to you:
- Employment history
Marriage does not affect your credit score because your credit scores, report, history remain separate. However, joint accounts may appear on both you and your spouse’s credit report.
All individuals with joint accounts (including those who do not have a high credit score or enough credit history to qualify for a loan) are responsible for payment, meaning that if one consumer misses a payment, everyone’s score is affected.
What Are The Credit Score Models And How Are They Calculated?
There are multiple credit score models used by different lenders with their own requirements. These credit scores detail your financial reliability and obligations to the credit bureaus. As usual, the higher your score, the more likely it is that you are approved for new lines of credit.
Although most consumers have hundreds of credit scores, these are the main ones used by lenders:
The FICO® score (short for Fair Isaac Corporation) is the most important and commonly used credit score. These scores range from 300 to 850 and is based on these factors:
- 35% is your payment history.
- 30% of your score are the debts owed.
- 15% has to do with the length of your credit history. The longer your credit history, the higher your score.
- 10% is based on new credit lines and accounts you have opened recently, along with new credit inquiries and hard inquiries.
- 10% is based on how varied your accounts are and the different types of credit.
FICO® changes their credit scoring method on occasion and currently has over 50 credit score models that are used for different types of debts such as a mortgage, auto loans, or credit cards.
The VantageScore was developed by the three major credit bureaus (Experian, Equifax, and TransUnion) and scores over 30 million more people than any other scoring system.
Credit Karma, which provides you with credit scores, credit reports, credit monitoring, and financial advice, uses a variant of the Vantage Score called V3.
Like the FICO® score, the VantageScore also changes their credit score models to accurately reflect a consumer’s financial history and takes several factors into consideration (in the order of most to least important):
- The length and type of credit affect your score greatly. The longer you have had credit, the higher your score.
- Credit utilization, which divides your balance by your available credit. Consumers are encouraged to keep their utilization under 30%.
- Payment history is also important. Late payments can stay on the report for up to 7 years.
- Your total current and delinquent debt are important to your score. The lower your debt, the higher your score.
- Recent credit-related behavior does not hold as much weight as other factors and includes new accounts and the number of hard inquiries.
- The amount of available credit you have holds low weight with your Vantage Score.
TransRisk, which is also known as the TransRisk New Account Score, was developed by TransUnion to detect a consumer’s risk on new (and not existing) accounts. This score is not used often by lenders because it specifically addresses new accounts.
Experian's National Equivalency Score
As suggested by its name, this score was developed by Experian and assigns users a score between 0 to 1000.
Although Experian has not revealed the exact scoring model, it is based on credit length, payment history, types of credit, credit utilization, total balances, and the number of hard inquiries. A score of 100 means that there is a 10% chance that an account will become delinquent in two years, a 200 means there is a 20% chance an account will become delinquent in two years, and so on.
Experian also provides a separate score range of 360 to 840, which is similar to FICO®.
CreditXpert Credit Score
The CreditXPert Score was developed by businesses to approve new candidates by looking at credit reports and finding ways to improve a credit score quickly.
CE Credit Score
The CE credit score was created to easily give to consumers for free at Quizzle. The credit score is on a scale of 330 to 830 and is based on credit length, history, types, utilization, and total balances.
The CE credit score is offered by Quicken Loans, which is CE Analytics's sister company.
Insurance companies have their own credit score model that determines how much of a risk a consumer may be. These scores range from 200 to 997 and are based on the type of insurance you are trying to acquire. Your premiums are often determined by this score.
These scores can be bought or similar free scores can be found at sites like Credit Karma.
What Are The Credit Score Ranges?
Each credit score model has different ranges:
- FICO® score: The FICO® score, which is widely used among lenders for mortgages, auto loans, and insurance, is the one that is pulled up 90% of the time. The score ranges from 300 to 850.
- PLUS score: This score, developed by Experian, is based on your Experian credit report’s information and is not used by lenders. The score ranges from 330 to 830.
- TransRisk score: This score was developed by TransUnion to judge a customer’s risk on new accounts. The score ranges from 100 to 900.
- Equifax score: This is similar to a PLUS score and ranges from 280 to 850.
- VantageScore: This score, which was created by the 3 credit bureaus to compete with the FICO® score, is the second most commonly used score by lenders. The current score has a range of 300 to 850.
What Qualifies As A Good Credit Score?
Lenders like banks, credit card companies, and car dealerships use these scores to determine what credit to offer consumers. A credit line like a credit card or small loan could have many scores considered “good,” but something more specific like a mortgage requires a much higher credit score. On average, mortgage lenders are looking for a FICO® score that is at least above 640.
The main two scores that are used are FICO® Scores and VantageScore. FICO® scores are broken down in the following way:
- Excellent: 800 to 850. 19.9% of applicants have this score and are the most likely to receive the best rates.
- Great: 740 to 799. 18.2% of applicants have this score and are likely to receive above-average rates from lenders.
- Good: 670 to 783. 21.5% of applicants have this score and only 8% of this group are at risk of becoming delinquent.
- Fair: 580 to 669. 20.2% of applicants have this score and are not considered to be reliable borrowers.
- Poor: 300 to 579. 17% of consumers have this score and will most likely not be approved for credit; if they are, they are likely to pay a deposit or additional fees.
VantageScore 3.0 also has a range between 300 to 850, but a score over 700 is considered good while a score over 750 is considered excellent. VantageScore ranges:
- Excellent: 750 to 850. 30.3% of applicants have a score in this range and are likely to have the best rates on credit accounts.
- Good: 700 to 749. 12.6% of applicants have this score and are more likely to be approved for credit with good rates.
- Fair: 650 to 699. 18.3% of applicants have this score, and although they are likely to be approved, they will likely not have competitive rates.
- Poor: 550 to 649. 34.1% of applicants have this rate, and although they may be approved for some credit, they may not receive good rates and have larger deposits and down payments.
- Very Poor: 300 to 549. 16.7% of applicants have this score and are not likely to be approved for credit.
What Are The Credit Scores Needed To Get The Best Loan Rates?
When you are searching for a new car, home, or credit cards, your credit score is typically pulled up by lenders to let them determine if you are eligible for a loan or mortgage.
- Apartments and homes: On average, consumers must have a score of 620 or above to be granted a lease. Anything lower than that may require a cosigner while popular rental areas may require a fee, deposit, several months’ rent, or automatic payments from your checking account. The ideal range for a home loan and reasonable rates are above 640 and anything below that may result in you being denied for a loan. The best mortgage rates are generally given to consumers who have a credit score over 720. However, there are exceptions to this since some consumers may receive FHA loans or VA loans, both of which require a credit score around 580 to 620. The FHA and VA do not actually provide loans, but insure loans to banks that lend them to consumers.
New car: Many dealerships advertise that consumers can acquire cars with any type of credit, but good deals on cars are usually for those with excellent credit.
Interest rates on cars are generally broken down like the following:
- Super Prime: With a score over 740, interest rates run at 2.70%
- Prime: With a score of 680 - 739, interest rates run at 3.67%
- Nonprime: With a score of 620 - 679, interest rates run at 5.49%
- Subprime: With a score of 550 - 679, interest rates run at 9.25%
- Deep Subprime: With a score of less than 550, interest rates run at 12.42% With low scores in the subprime and deep subprime ranges, you may not be able to receive a loan, and if you do receive a loan, the interest rates will be much higher. Ideally, you can receive the best rates for a car loan with a score over 620. Studies have shown that consumers with a score of over 720 pay around $6,000 less on a 5-year car loan than those with credit scores in a nonprime range.
- Credit cards: Top-tier credit cards (like those with 0% balance transfers, rewards, and low interest rates) require higher credit scores above 720. Credit scores around 640 generally qualify for good credit cards with reasonable rates.
How Do I Find My Credit Score?
You can acquire your credit scores through a few methods:
- You are entitled to one free credit report every year at www.annualcreditreport.com.
- Many credit card companies also offer customers (and sometimes even non-customers) their FICO® scores for free.
- You can purchase your FICO Score at FICO®’s website, www.myfico.com.
- Your VantageScore can be bought at VantageScore’s website, www.vantagescore.com.
- Some banks and credit cards offer credit score monitoring for a price, but they may not be the most commonly used scores (FICO® and VantageScore).
- Credit monitoring sites like CreditKarma or Credit.com may offer your scores for free or for a monthly fee.
How Do I Improve My Credit Score?
If you are looking to boost your credit score there are some steps you can take:
- Pay your accounts and creditors on time
- Keep your credit utilization low by using less than 30% of the available credit
- Lower your debt to income ratio
- Pay off your credit cards
- Use a credit repair service or DIY credit repair to remove any erroneous or unverifiable items (like late payments, charge-offs, collections, tax liens, and more) from your credit reports
Achieving a good credit score can take time, but you can start building credit by taking a few steps:
- If you are new to credit, you may not have an established credit score. In this case, you can start to build credit by starting with a credit card. If you are under 21, find a cosigner (like a parent) that has enough income to pay back used credit, and add them as an authorized user.
- You can open a secured credit card or an account with a bank or credit union that has a small credit limit.
- 20% of consumers have found errors on their credit reports. In these cases, you can dispute these items with bureaus on your own or hire a credit repair service to do the legwork for you. Around 80% of consumers who have disputed erroneous items successfully removed them.
- Do not fall for any scam artists that promise to increase your score by an unreasonable amount or overnight since this is an illegal practice.
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