What is a good credit score?

In a nutshell

A credit score is a three-digit number that tells financial institutions and lenders whether you are a trustworthy or a risky person to lend money to.

• If your credit score is poor, it can be much harder to do things like get a loan for a car, get a credit card, or even buy or rent a home.
• There are two main types of scores that lenders use to determine your creditworthiness: FICO and VantageScore.
• A “good” score is generally above 650.

What is a good FICO score?

FICO, which stands for Fair Isaac Corporation, was among the first to develop a way to calculate a credit score to help lenders determine which customers to work with. Today, FICO is one of the most commonly used methods of determining creditworthiness by lenders and financial institutes.

FICO uses information collected by the three main credit bureaus — Experian, TransUnion, and Equifax — to come up with a three-digit credit score that tells lenders the riskiness of giving a loan or credit card to each customer. The FICO score spans from 300 to 850, and there are five ranges within those numbers that determine a customer’s creditworthiness:

• A “poor” FICO credit score is less than 580.
• A “fair” FICO credit score ranges from 580 to 669.
• A “good” FICO credit score ranges from 670 to 739.
• A “very good” FICO credit score ranges from 740 to 799.
• An “exceptional” FICO credit score is 800 and above.

In general, the higher your FICO credit score, the better loan terms and interest rates you’ll be offered by lenders when it comes to credit cards, car loans, mortgages, personal loans, and more. That’s why it’s important to get your credit score as high as possible; a borrower with a “good” or higher credit score could save hundreds or thousands of dollars in interest over the term of a loan compared to someone whose score is considered “fair” or “poor.” Additionally, borrowers with FICO scores lower than 670 may find it difficult, and in some cases impossible, to even get a loan or a credit card in the first place.

What is a good VantageScore?

Although many financial institutions and lenders use FICO credit scores to determine borrowers’ creditworthiness, it’s not the only score out there. VantageScore has its own scale, though it uses the same data from the three main credit bureaus. Like FICO, VantageScore’s numbers range from 300 to 850, but the five ranges within that are arranged and named differently:

• A “very poor” VantageScore ranges from 300 to 499.
• A “poor” VantageScore ranges from 500 to 600.
• A “fair” VantageScore ranges from 601 to 660.
• A “good” VantageScore ranges from 661 to 780.
• An “excellent” VantageScore ranges from 781 to 850.

For lenders who use VantageScore to determine creditworthiness, anything above 661 that falls in the “good” or “excellent” range is generally considered “prime,” and those customers will likely have an easier time getting a credit card or a loan and will enjoy friendlier terms and lower interest rates, which saves the borrower money over the life of the loan. Borrowers whose VantageScore is 660 or below should actively work on improving their score in order to get better rates and terms on loans and credit cards in the future.

What factors impact your credit score?

As previously mentioned, both FICO and VantageScore use data from the three main credit bureaus (Experian, Equifax, and TransUnion) to come up with each person’s credit score. Both types of scores generally look at the same information to come up with that score. Here are the main factors that impact your credit score with FICO and VantageScore.

Payment history

FICO and VantageScore both look at the customer’s payment history when determining their credit score. If the customer has a long history of paying their bills on time, that means they are capable of organizing their finances and, therefore less of a risk to default on their loan. A customer with a spotty history of on-time payments or who has a lot of late payments or accounts sent to collections is a risky prospect for any lender, and that will affect their credit score accordingly.

Credit utilization

In general, people whose credit utilization is more than 30 percent are seen as riskier than those with low credit utilization. High balances on credit cards suggest that you’re not able to make minimum payments, and the more debt you have, the less likely you will be able to pay off an additional loan or credit card.

Length of credit history

If you’ve just graduated from high school and have maybe one credit card for emergencies, you have little to no information for FICO or VantageScore to use in order to determine your credit score. That’s why young people who are just starting out tend to have lower credit scores than many older Americans. As you take out loans and credit cards over your lifetime, your credit history will be longer and more detailed, making it much easier for FICO and VantageScore to give you a score.

Credit mix

Generally, someone with a good mix of different types of credit is seen as less risky than someone who has dozens of credit cards and no loans. A good mix of both installment (i.e., loan) and revolving (i.e., credit card) debt is typically seen as positive by both credit rating agencies, provided the person is paying off the debt and not letting it spiral out of control.

Recent activity

When you apply for a loan or a credit card, the credit bureaus make a note of it on your report. When FICO and VantageScore look at your credit information and see that you’ve applied for multiple credit cards or several different loans within a few months, that can seem suspicious and can result in a lower credit score. The fear is that someone who is applying for multiple credit cards or loans in a short space of time has a debt problem they are unable to control and will not be able to pay off any additional debt they incur from new lenders.

How to get a good credit score

If your credit score is considered “poor” or “fair,” you might worry that you’ll never be able to turn things around in order to seem more creditworthy. However, it is possible to get a good credit score if you are able to commit to the following.

Pay your bills on time

One of the most important things you can do to improve your credit score is to pay your bills on time. On-time payments are a major factor in both the FICO and the VantageScore credit score, so showing a good payment history can do wonders to improve your score.

Keep credit balances low

Try to avoid charging things you don’t need to your credit card, and aim to pay the balance in full (or at least the minimum amount) every month to keep your credit card debt from spiraling out of control. A credit card can be a wonderful tool to build credit if you use it properly, but maxing out your card can do real damage to your credit score if you’re not careful.

Don’t close credit accounts

Unless you have a good reason, try to avoid closing credit cards. Having older cards, even if you rarely use them, can help your credit score by increasing your total credit amount and lowering your credit utilization.

Don’t apply for multiple loans or credit cards at once

Every time you apply for a loan or a credit card, the lender will run your credit report and the three bureaus will make a note of it on your report. If your credit report is run too frequently, it can suggest you are frantically looking for money and can decrease your credit score. Be mindful about how often you apply for a loan or a credit card.

Keep an eye on your credit reports

Even if you diligently pay your bills on time and do everything else right, someone may try to use your information to illegally open up a line of credit and max it out quickly, which can leave a black mark on your credit report. By closely monitoring your credit, you can report anything that looks suspicious and have it rectified before it has a serious effect on your credit score.

Frequently asked questions (FAQs)

What is a normal FICO score?

FICO scores range from 300 to 850, with anything over 670 being considered “good” or “excellent.” Most lenders will require a score in this range in order to approve a loan or a credit card for a customer.

What is a good FICO score for a mortgage?

Many mortgage companies require a FICO score of 620 or higher for a conventional loan, though this can vary from lender to lender. In general, the higher the score, the lower the interest rate the customer will qualify for.

Does FICO go to 900?

No, FICO’s range is from 300 to 850, with the “excellent” range being between 800 and 850.