While there are various different credit reporting tools available, most lenders and creditors use your FICO Score and VantageScore to make most lending decisions. Although there are minor variations in determining what is a good credit score, most lenders agree that the average benchmark of 700 serves as a good guideline for determining a good credit score. Before you can know if you have a good credit score, you must first find out what your credit score is.
So, What is a Good Credit Score?
A good credit score offers you way more than just bragging rights! A score of 700 or more gives you all the leverage you need to negotiate lower interest rates on all your loans, get the best prices on your new car, and purchase that new home or rent one if you aren’t ready to buy. A good credit score can also help eliminate the dreaded security deposits for your cell phone service and utilities. Even car insurance rates are based on it and a good score can help you negotiate the best rates. All three credit bureaus, TransUnion, Equifax, and Experian report your scores to help you achieve and maintain your best credit rating; however, the most popular tools used by lenders to determine what is a good credit score are your FICO Score and VantageScore.
Although the FICO Next Generation credit score and the FICO Industry Option score range from 150s and 250s on the lower end of the scale, the general reporting range is 300 to 850. The two most popular and widely used reporting scores are your FICO score and VantageScore and both agree that 700 or more is considered a good credit score. Both of these comprehensive credit reporting tools incorporate specific aspects of your credit history when determining your overall rating. Common factors used include the length of time you have held established credit, your payment history, the balances you owe, and the amount of new credit you have or have applied for. Both ratings weigh these factors differently, so your scores may vary a few points between the two.
All three reporting bureaus, Equifax, TransUnion, and Experian report both your FICO score and VantageScore, but have their own individual scores to assist consumers to achieve what is a good credit score for the major reporting agencies. Consumers can usually access their Equifax and TransUnion scores for free by using a free credit reporting site. Credit card issuers, such as Chase and Citi, will also offer their credit card holders access to their FICO or VantageScore online monthly or quarterly. Experian will also allow consumers to check their credit score by request directly from Experian.
Your Fico Credit Score
The FICO score, invented by the Fair Isaac Corporation in 1956, created a numerical scoring system for establishing a person’s worthiness to receive credit. The scoring system began gaining momentum in the 1960s and is now the main determining score used by 90% of lenders in making decisions on mortgages and other types of loans. It is also used by creditors to determine revolving credit decisions and establishing credit limits in conjunction with your VantageScore.
The FICO score’s magic formula to determine it remains a mystery; however, the following factors have been shared with consumers to aid them regarding the different factors used to determine what is a good credit score. Estimates on the formula have revealed that paying your bills on time for the duration of your history is responsible for 35% of your score. 30% of your FICO score comes from your outstanding balances and 15% comes from how long you have held credit. The remaining 20% is determined by new credit activity, such as recent accounts and new credit applications, as well as the different types of credit you have. Lenders consider the management of different types of credit accounts, such as loans and revolving credit, a good sign of financial responsibility. In order to obtain a FICO score, you must have held credit for at least 6 months.
The latest version of the VantageScore is VantageScore 3.0. The score has been developed by all three bureaus, Equifax, Experian, and TransUninion, and is used by many lenders in making decisions. Although the factors for determining what is a good credit score are similar to those used in determining your FICO scores, there are some subtle differences. For example, establishing different types of credit is considered highly influential in determining your VantageScore, as well as the percentage of credit you are using. Meanwhile, your total outstanding balances are of moderate importance. The VantageScore also differs from the FICO score in terms of the length of your history. Your VantageScore is more highly influenced by how long you have held credit, and it usually takes a credit history of 24 months before your VantageScore is determined.
Credit Scores from Experian, TransUnion, and Equifax
All three credit bureaus also have their own individual credit scores. These are primarily used by consumers to monitor them on a regular basis. The scores may vary, and individual credit accounts, such as store cards and independent creditors, may not report to all three agencies. Some independent revolving store accounts may use these individual credit scores to make decisions when consumers have a limited history or are establishing new credit, such as younger consumers.