What Credit Score Is Considered Good?

 

Quick Summary:

A credit score is a three-digit number calculated from information on a credit report that ranges from 300 to 850. A credit score of 670 to 739 on the FICO® Score range is considered good, while a credit score of 661 to 780 on the VantageScore® range is considered good.

A credit score, which ranges from 300 to 850, is a numerical rating that assesses a person's ability to repay a debt. A higher credit score indicates that a borrower is less risky and more likely to pay on time. Credit scores are frequently used to predict whether or not a person will pay back debts such as loans, mortgages, credit cards, rent, and utilities. Credit scores can be used by lenders to determine loan qualification, credit limit, and interest rate.

A credit score of 700 or higher is considered good for a score ranging from 300 to 850. A score of 800 or higher on the same scale is considered excellent. The majority of consumers have credit scores ranging from 600 to 750. In 2021, the average FICO® Score in the United States will be 714, up four points from the previous year. 

Higher scores can reassure creditors that you will repay your future debts on time. However, creditors may define what they consider to be good or bad credit scores when evaluating consumers for loans and credit cards.

This is partly determined by the types of borrowers they wish to attract. Creditors may also consider how recent events may affect consumers' credit scores and adjust their requirements accordingly. 

Although some lenders develop their own custom credit scoring programs, the two most widely used credit scoring models are those developed by FICO® and VantageScore®.

What Is a Good FICO® Score?

FICO® generates various types of consumer credit scores. The company creates "base" FICO® Scores for use by lenders across multiple industries, as well as industry-specific credit scores for credit card issuers and auto lenders.

FICO® Scores range from 300 to 850, with 670 to 739 being considered "good." FICOindustry-specific ®'s credit scores range from 250 to 900. The middle categories, on the other hand, have the same groupings, and a "good" industry-specific FICO® Score is still 670 to 739.

What Is a Good VantageScore?

VantageScore's first two credit scoring models had 501 to 990 ranges. The two most recent VantageScore credit scores (VantageScore 3.0 and 4.0) use the same 300–850 range as the base FICO® Scores. VantageScore defines a good range for the latest models as 661 to 780.

What Affects Your Credit Scores?

Common factors that can affect all of your credit scores are often divided into five categories:

• Payment history: Making on-time credit card payments can boost your credit score. Missing payments, having an account sent to collections, or declaring bankruptcy can all lower your credit score.

• Credit usage: The number of accounts with balances, the amount owed, and the percentage of your credit limit used on revolving accounts all play a role here.

• Length of credit history: The average age of all your credit accounts, as well as the ages of your oldest and newest accounts, are included in this category.

• Types of accounts: This, also known as "credit mix," considers whether you manage installment accounts (such as a car loan, personal loan, or mortgage) as well as revolving accounts (such as credit cards and other types of credit lines). Demonstrating that you can responsibly manage both types of accounts generally improve your scores.

• Recent activity: This factor takes into account whether you've recently applied for or opened new accounts.

FICO® and VantageScore approach the relative importance of the categories in different ways.

FICO® Score Factors

FICO® uses percentages to represent how important each category is in general, but the exact percentage breakdown used to determine your credit score will be determined by your individual credit report. FICO® considers the following scoring factors in the following order:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10%

VantageScore Factors

VantageScore ranks the factors in terms of how influential they are in determining a credit score, but this will also depend on your individual credit report. VantageScore considers the following factors in the following order:

• Total credit usage, balance and available credit: Extremely influential
• Credit mix and experience: Highly influential
• Payment history: Moderately influential
• Age of credit history: Less influential
• New accounts opened: Less influential

What Information Credit Scores Do Not Consider

When calculating credit scores, FICO® and VantageScore do not take the following factors into account:

• Your ethnicity, race, religion, national origin, gender, or marital status. (Under US law, credit scoring formulas are not permitted to take into account these facts, as well as any receipt of public assistance or exercise of any consumer right under the Consumer Credit Protection Act.)

• Your age.

• Salary, occupation, title, employer, date of employment, or work history (However, keep in mind that lenders may take this information into account when making overall approval decisions.)

• Where you live.

• Inquiries should be gentle. Others usually initiate soft inquiries, such as companies making promotional credit offers or your lender conducting periodic reviews of your existing credit accounts. Soft inquiries are also generated when you check your own credit report or use credit monitoring services from companies such as Experian. These inquiries have no effect on your credit scores.

Why Are There Different Credit Scores?

Credit scores are used by lenders to make lending decisions. FICO® and VantageScore develop different credit scoring models for lenders, and both companies release new versions of their credit scoring models on a regular basis, much like other software companies release new operating systems. 

The most recent versions may include technological advancements or changes in consumer behavior, or they may better comply with recent regulatory requirements.

VantageScore, for example, develops a tri-bureau scoring model, which means that the same model can evaluate your credit report from any of the three major consumer credit bureaus (Experian, TransUnion and Equifax). In 2006, the first version (VantageScore 1.0) was created.

 VantageScore 4.0, the most recent version, was released in 2017 and was developed using data from 2014 to 2016. It was the first generic credit score to include trended data, or how consumers manage their accounts over time.

FICO® is a more established company that was among the first to develop credit scoring models based on consumer credit reports. It develops different versions of its scoring models for use with the data from each credit bureau, though recent versions share a common name, such as FICO® Score 8. Consumer FICO® Scores are classified into two types:

• Base FICO® Scores: These scores are designed for use by any type of lender and aim to predict the likelihood of a consumer falling behind on any type of credit obligation. FICO® base scores range from 300 to 850.

• Industry-specific FICO® Scores: FICO® develops auto scores and bankcard scores for auto lenders and card issuers. Industry scores range from 250 to 900 and aim to predict the likelihood that a consumer will fall behind on a specific type of account.

FICO® industry-specific scores are built on top of a base FICO® Score, and FICO® releases new suites of scores on a regular basis. For example, the FICO® Score 10 Suite was announced in early 2020. It includes a FICO® Score 10 baseline, a FICO® Score 10 T (with trended data), and new industry-specific scores.

Scores are also used infrequently. For example, FICO® is gradually introducing the UltraFICO® Score, which allows consumers to link checking, savings, or money market accounts and takes banking activity into account. Lenders may also develop custom credit scoring models for their target customers.

Lenders can select the model they want to use. In fact, some lenders may decide to stick with older versions due to the investment that switching may entail. In addition, many mortgage lenders use older versions of the base FICO® Scores to comply with government-backed mortgage companies Fannie Mae and Freddie Mac guidelines.

In addition, you may not know which credit report and score a lender will use until you submit an application. The good news is that all consumer FICO® and VantageScore credit scores use the same underlying information to determine your credit scores—data from one of your credit reports. They are also all attempting to predict the likelihood that a person will become 90 days past due on a bill (either in general or on a specific type) within the next 24 months.

As a result, the same factors can have an effect on all of your credit scores. If you monitor multiple credit scores, you may notice that your scores differ depending on the scoring model and which of your credit reports it examines. However, you may notice that they all tend to rise and fall together over time.

Why Having a Good Credit Score Is Important

In general, having good credit can make it easier to achieve your financial and personal goals. It could mean the difference between being approved or denied for a major loan, such as a home mortgage or car loan. And it can have a direct impact on how much interest or fees you'll have to pay if you're approved.

The difference between a 30-year, fixed-rate $250,000 mortgage with a 670 FICO® Score and a 720 FICO® Score, for example, could be $72 per month. That's money you could be putting toward savings or other financial objectives. A good credit score could save you $26,071 in interest payments over the life of the loan.

Credit scores can also influence non-lending decisions, such as whether a landlord will agree to rent you an apartment.

Your credit reports (but not your consumer credit scores) can have other consequences for you. Some employers may check your credit reports before hiring or promoting you. In addition, in most states, insurance companies may use credit-based insurance scores to help determine your auto, home, and life insurance premiums.

How to Improve Your Credit Scores

Focus on the underlying factors that affect your credit scores to improve them. The fundamental steps you must take are fairly straightforward:

• Make at least your minimum payment and make all debt payments on time: A single late payment can have a negative impact on your credit score and can stay on your credit report for up to seven years. If you suspect you will miss a payment, contact your creditors as soon as possible to see if they can work with you or provide hardship options.

• Keep your credit card balances low: Your credit utilization rate, which compares the current balance and credit limit of revolving accounts such as credit cards, is an important scoring factor. A low credit utilization rate can improve your credit scores. Individuals with excellent credit typically have an overall utilization rate in the single digits.

• Open accounts that will be reported to the credit bureaus: If you have few credit accounts, make sure that any new ones you open are added to your credit report. These could be installment accounts like student loans, auto loans, home loans, or personal loans, or revolving accounts like credit cards and lines of credit.

• Only apply for credit when you need it: Applying for a new account may result in a hard inquiry, which can lower your credit score slightly. The impact is often minimal, but applying for multiple types of loans or credit cards in a short period of time may result in a larger score drop.

Other factors can also have an impact on your scores. Increasing the average age of your accounts, for example, could improve your scores. However, it is frequently a case of waiting rather than acting.

Checking your credit scores may also provide you with information on how to improve them. For example, when you check your free Experian FICO® Score 8, you can also see how you're doing in each of the credit score categories.

You'll also get a quick overview of your score profile, including what's helping and hurting your score.

What to Do if You Don't Have a Credit Score

Credit scoring models use your credit reports to calculate your score, but they cannot score reports with insufficient information.

FICO® Scores require the following:

• An account that's at least six months old

• An account that has been active in the past six months

VantageScore can score your credit report if it has at least one active account, even if it is less than a month old.

If you are not creditworthy, you may need to open a new account or add new activity to your credit report in order to begin building credit. This frequently entails beginning with a credit-builder loan or secured credit card, or becoming an authorized user.

Why Your Credit Score Changed

Your credit score can change for a variety of reasons, and it's not uncommon for scores to fluctuate throughout the month as new information is added to your credit reports.

You might be able to pinpoint a specific event that results in a score change. A late payment, for example, or a new collection account will almost certainly lower your credit score. Paying off a large credit card balance and lowering your utilization rate, on the other hand, may raise your credit score.

However, some actions may have an unexpected impact on your credit scores. Paying off a loan, for example, may result in a drop in your scores, despite the fact that it is a positive action in terms of responsible financial management. 

This could be because it was the only open installment account or loan with a low balance on your credit report. After repaying the loan, you may be left with only high-balance loans or no open installment or revolving accounts.

After paying off your credit card balances, you may decide to discontinue using them. Avoiding debt is a good idea, but inactivity in your accounts may result in a lower score. To keep your account active and build an on-time payment history, you may want to use a card for a small monthly subscription and then pay off the balance in full each month.

Remember that credit scoring models rely on complex calculations to determine a score. You may believe that one event caused your credit score to rise or fall, but this is only a coincidence (for example, you paid off a loan, but your score actually increased due to a lower credit utilization ratio). Furthermore, a single event isn't "worth" a certain number of points; the point change is determined by your entire credit report.

A new late payment, for example, could result in a large point drop for someone who has never been late before, as it may indicate a change in behavior and, thus, credit risk. Someone who has previously missed many payments, on the other hand, may experience a smaller point drop from a new late payment because it is already assumed that they are more likely to miss payments.

How to Check Your Credit Score

It used to be difficult to check your credit score. However, there are numerous ways to check your credit scores today, including a number of free options.

One of your credit scores may be available for free from your bank, credit union, lender, or credit card issuer. Experian also provides a free FICO® Score 8 based on your Experian credit report.

The source can influence the type of credit score you receive. Some services may provide you with a version of your FICO® Score, whereas others may provide VantageScore credit scores. In either case, the calculated score will be affected by the credit report that the scoring model examines.

Some services even allow you to check multiple credit scores at the same time. With an Experian CreditWorksSM Premium membership, for example, you can get your FICO® Score 8 scores based on your Experian, Equifax, and TransUnion credit reports, as well as multiple other FICO® Scores based on your Experian credit report.

Monitor Your Credit Report and Score

Checking your credit score right before applying for a new loan or credit card can help you understand your chances of qualifying for favorable terms—but checking it earlier gives you the opportunity to improve your score and potentially save hundreds or thousands of dollars in interest. Experian provides free credit monitoring for your Experian report, which includes alerts if there is a suspicious change in your report in addition to a free score and report.

Keeping track of your credit score can help you improve it, increasing your chances of qualifying for a loan, credit card, apartment, or insurance policy—all while improving your financial health.