What is a Good Credit Score and Why Does it Matter?

Banks Editorial Team · December 2, 2018

Most credit scores usually fall under the 600-750 range. Better credit decisions result in higher scores which give creditors the confidence that a borrower will repay their future debts. Conversely, lenders can use a poor credit score as a basis for denying you credit. Different reports have varying metrics which lenders use to determine what is a good credit score. Find out what your credit score is now for free:

 

How Credit Bureaus Define a Good Credit Score

A FICO score above 670 is considered a good credit score and a Vantage Score above 700 is equally good. Banks and other lenders in the United States, including car dealerships with financing options and credit card companies, make decisions about offering borrowers credit based on how good their credit score is.

Having a high credit score increases the chances of getting your loan or credit card request approved. However, the benefits of a good credit score extend beyond your ability to secure credit — it also determines how favorable the terms of the lender’s offer (payable interest rate and down payment) will be. FICO credit scores and VantageScore are two of the most common credit reports used by lenders in the United States, but industry-specific credit reports like the Experian’s PLUS Score also exist.

What is a Good Credit Score? The Determining Factors

Your credit score is usually a cumulative score of how well you perform in the following 5 categories:

Payment History

It’s advisable to pay all outstanding bills — credit cards, electricity, mortgage payments, everything — on time. Making timely payments on your financial obligations is one of the top ways of boosting your credit score.

Credit Usage

Using a lower amount of credit is better than frequently maxing out your credit line. To maintain a good credit score, borrowers should try to keep a credit balance of 30% or lower.

History of Handling Credit

It’s usually a good sign when lenders can access your past credit history. For example, keep old credit card accounts operational but with minimal use. An old card might be subjected to higher interest rates and fees but shows a longer credit history.

The Frequency of Credit Applications

Submitting too many applications for credit will significantly lower your credit score. We advise borrowers to only start a new credit line every 6 months.

Type of Credit

Lenders prefer to see different types of credit in your credit history. A credit mix that includes car loans, credit cards, and, student loans, for example, is a good sign and suggests that you can use credit responsibly.

Know Your Score

Don’t presume you have a good credit score because you’ve always paid all your bills in good time. The only way to be sure is to use a credit score estimator that calculates your credit score after you fill in some basic information. My FICO’s credit score estimator is one such handy tool.

What is a Good Credit Score According to the FICO Score?

FICO (Fair Isaac Corporation) was behind the development of a scoring system that is used by 3 of the major credit reporting bureaus in the United States — Equifax, Experian, and Transunion.- and is used by over 90% of lenders to assess requests for credit. Fico scores often range from 300 to 850.

A FICO score of 670 and above is considered a good credit score, while lenders perceive any score above 800 as exceptional.

Below is a summary of FICO’s full range of credit scores which are used to categorize borrowers:

  • Very poor: 300-579
  • Fair: 580-669
  • Good: 670-739
  • Very good: 740-799
  • Exceptional: 800-850

How to Determine a Good VantageScore

VantageScore — a joint venture between Experian, Transunion, and Equifax — is used as an alternative to the FICO scoring model. Both of these models use similar information such as credit type and payment history to calculate your credit score. However, if your credit history is short, it’s better to monitor your VantageScore because FICO credit scores need at least 6 months of credit history and a reported account within the same time period to be generated.

VantageScore 3.0 uses a credit score ranging from 300 to 850. A VantageScore credit score of 700 and above is considered good, while a score rating of 750 and above is deemed as excellent. VantageScore’s full range of credit scores include:

  • Very Poor: 300-549
  • Poor: 550-649
  • Fair: 650-699
  • Good: 700-749
  • Excellent: 750-850

You can quickly view what lenders are seeing when reviewing your credit report by getting a free credit report.

Getting to know what is considered a good credit score is behind the upward trend of credit scores that we’ve been seeing lately. The average credit score in the United States is increasing as more people learn what a good credit score is and the benefits that come along with it. Monitoring your credit regularly can also prevent unwanted negative marks on your credit report.

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