What Is A Good Credit Score?

Credit scores are vital for your finances. Whether you’re looking for a new credit card, loan or even a bank account, potential lenders will use your credit score to determine your creditworthiness. While good credit can open up more product options and more attractive rates, bad credit can significantly limit your options. So, what is a good credit score? In this article, we’ll delve into this topic in more detail to help you make informed decisions. 

The Different Credit Agencies and Bureaus:

Before we can start exploring the concept of good credit scores, it is important that you understand we don’t have just one credit score. There are three main credit bureaus and each one uses its own credit score model, calculating the scores with different methods. There are also independent credit agencies who have their own scoring models. Lenders typically use one credit score when they assess applications, but which one can vary. The most frequently used credit scores are FICO, which is the Fair Isaac Corporation’s model and is considered the industry standard, and VantageScore, which uses data from the three main credit bureaus. 

Good FICO Scores:

FICO has a scoring range of 300 to 850, with higher numbers representing better scores. If your score is 669 or less, you’ll have a fair or poor credit rating, but scores of 670 to 739 are good, while 739+ is an excellent or exceptional score. However, this can be further complicated as FICO has different consumer credit scores. The “base” score is calculated for general lender use, but FICO also has industry specific scores for credit card companies and auto lenders. The score range can differ for these FICO ratings, but the good range is still typically 670 to 739. 

Good VantageScore Ratings:

Like FICO, VantageScore also has several scoring models. The first two scoring models have a range of 501 to 990, but VantageScore 3.0 and 4.0 use a range of 300 to 850, matching the range used by FICO. But, a good VantageScore is a little different, falling in the 661 to 780 range. 

The Impact of a Good Credit Score:

Regardless of the specific credit score model, having good credit will potentially make it easier to achieve any financial goals. Improving your score to enter the good range could mean the difference between an application being approved or denied.  Your score will also have an impact on the interest rate you’ll be charged and any fees that may apply if you qualify for your loan. If you have a good score, you’re likely to qualify for a lower rate compared to someone with a lower score, even if their financial circumstances are similar. This can have a significant and direct impact on what your new loan costs you. For example, if you take out a 30 year fixed rate $250,000 mortgage, having a FICO score of 670 could save you up to $161 per month compared to a 620 FICO score. Over the entire lifespan of the mortgage, this represents more than $57,000 in additional interest charges.  A good credit score could also impact non lending financial decisions. For example, you may be more likely to qualify for an apartment rental or pay less on your insurance premiums compared to someone with a lower score. 

Tips to Improve Your Credit Score:

If you need to build your credit or give your score a boost to enter the good range, there are a few things that you can do. 

Build a Good Payment History:

If you don’t have a credit history or you’ve got a few blemishes on your financial track record, you can improve your credit score by building a good payment history. Even something fairly insignificant such as a low balance credit card can be helpful to build a positive payment history. You could even look at a secured credit card, where you pay a deposit to fund the account. Just be sure to make all your payments on time each month and this will be reported to the credit bureaus. If you’re not good at remembering due dates, consider using auto payment for your accounts. You can set it for the minimum amount due to avoid any late or missed payments and make additional manual payments if you have extra money during the month. You will need to check whether your account history is reported to the credit bureaus. Utility and cell phone bills are not typically reported and some credit card issuers don’t report to all three bureaus. So, look for accounts that will help you to build a complete credit history. 

Avoid Maxing Out Accounts:

If you have a credit card with a good limit, it can be tempting to use it for a spending spree and think about the cost later. But, this can not only be bad for your long term financial health, it can also impact your credit score. The credit bureaus often factor credit utilization into their score calculations. Essentially, credit utilization ratios refer to the amount you owe as a percentage of your total available credit. For example, if you have a credit card and a personal loan with a total credit limit of $10,000, if you carry a balance of $5,000, your credit utilization is 50%. So you need to think about how the balance on your loan and credit cards impact your credit utilization. The optimal credit utilization is less than 30%, so try to keep your ratio as low as possible. 

Avoid Frequent Applying:

Although there are some great offers for credit products and you may receive mailers for new credit card deals, applying frequently can damage your credit score, even if your applications are successful. Every time you submit a new application, the lender will perform a hard credit inquiry to check your credit. This is recorded on your credit history and multiple inquiries could be a red flag for any potential lenders. Some credit scoring models also include the length of your credit history. This is typically an average, so if you open up new accounts, you will automatically lower your average.