Your credit score is a three-digit number ranging between 300 and 850, which provides an insight into how you manage debt obligations. Those who have higher credit scores are seen as less likely to fall behind on debt payments. However, if your credit score is on the lower end, you’ll be perceived as risky in the eyes of lenders, and your borrowing costs could be higher.
Not all lenders and creditors will see identical scores when checking your credit, as there are various credit-scoring models. Stick around to learn more about why credit scores differ, how scoring models work and ways to improve your overall credit health.
Why Are There Different Credit Scores?
The two most prevalent credit-scoring models are FICO and VantageScore.
FICO scores are used by 90 percent of creditors and lenders to make a credit decision. FICO (or the Fair Isaac Corporation) is the originator of credit scores and reports. It uses the information found in your credit reports to generate base FICO scores and industry-specific FICO scores. The latter includes bankcard and auto scores used by credit card issuers and auto lenders. But unlike base FICO scores, industry-specific scores range from 250 and 900, and consumers with higher scores have the strongest credit profiles.
VantageScore also uses the data in your credit reports from the three main credit bureaus – Experian, TransUnion and Equifax – to generate your credit score.
What Are The Credit Score Ranges?
Below is a breakdown of credit score ranges for FICO and VantageScores:
FICO Score Range
- 800 – 850: Exceptional
- 740 – 799: Very good
- 670 – 739: Good
- 580 – 669: Fair
- 300 – 579: Poor
- 300 – 499: Very Poor
- 500 – 600: Poor
- 601 – 660: Fair
- 661 – 780: Good
- 781 – 850: Excellent
Why Is It Important to Have a Good Credit Score?
Your credit score impacts many areas of your life. For example, it plays a role in your interest rate when getting a loan or credit card, and a slight increase in the rate could cost you several hundred or thousands more over time.
A good credit score also means you’ll have a greater chance of getting approved for an apartment, and you could avoid paying a hefty security deposit. Furthermore, you could save money on deposits when the time comes to connect utilities.
Employers in some industries also evaluate credit reports to make hiring decisions. And a strong credit score could mean more affordable auto insurance premiums if you live in a state where insurance companies use credit-based insurance scores.
Ways to Improve Your Credit Score
If your credit score needs work, consider these tips to start making improvements:
Always Pay Your Bills on Time
Payment history accounts for 35 percent of your FICO score. So, it’s vital that you pay your bills on time or work out a payment arrangement with your creditor or lender to avoid adverse credit reporting.
But if you miss a payment, it’s not the end of the world, as it won’t be reported until the account is 30 days past due. If you’re still unable to pay, the delinquency will be reported and linger on your credit report for up to seven years.
Resolve Outstanding Debts
Bring current past-due accounts, and reach out to creditors to resolve outstanding debts. Request a payment plan that works for your budget to ensure you uphold your end of the bargain. You can also negotiate a settlement offer, but the account will be updated to reflect that you paid less than what was originally owed. Either way, get the agreement in writing just in case you need it in the future.
Keep Balances Low
The amount you owe creditors accounts for 30 percent of your FICO score. A significant component of that calculation is your credit utilization rate, which is the percentage of your credit limit in use. So, if your credit card has a limit of $1,000 and you owe $500, your credit utilization rate is 50 percent. Ideally, you want to keep these percentages at 30 percent or lower – 10 percent is even better – to maintain a healthy credit score.
Sign Up for Accounts that are Reported to the Bureaus
You need to responsibly manage credit accounts to build your credit score. But if you have few or no loans or credit cards, only apply for those accounts that report to the credit bureaus.
But Only Apply When You Really Need It
Each time you apply for a new account, a hard inquiry is generated and can drop your credit score by a few points. Too many inquiries in a short period can signal financial distress to lenders and creditors and could significantly ding your score.
Regularly Monitor Your Credit Score
If you haven’t yet checked your credit score, now’s a good time to take a look and see where you stand. Visit Experian.com to sign up for a free account and view your credit report and score. Plus, you’ll receive real-time alerts any time activity takes place in your credit file.
You can also view tips on improving your credit scores directly from the dashboard. And the free account includes Experian Boost, a tool that allows you to add payment history from eligible service providers to your Experian credit report with the potential to increase your credit score in real time.