What is a good credit score?

This quick guide will explain credit scores, including how they work and what ranges are considered good. It also explains why they’re essential.

Credit scores can be used to predict if a person will pay back a loan on the due date. It’s easy enough. It can be challenging to define what a good score means. We will be discussing some of these reasons in this article. If you are looking for an immediate answer, then it is probably best to look at the famous credit-scoring firms’ FICO(r) and VantageScore (r):

  • FICO states that good credit scores range from 670 to 739. This is based on scores ranging from 300 to 853.
  • VantageScore’s high scores range from 661 to 780, as well as a 300-850 range.

There’s more to it than that. Keep reading to learn more about credit scores.

Basics of good credit

Before you go any further, it may be helpful to know a bit about your credit score. The Consumer Financial Protection Bureau (CFPB) states that scores are usually based on credit reports. Companies like VantageScore and FICO use complex scoring models to calculate them.

What is FICO?

FICO, abbreviated from Fair Isaac Corporation, is credited for creating the first standard scoring model. It was 1989. FICO has developed multiple versions of its scoring model over the past 30 years. However, FICO claims that today’s models look very similar to the original.

FICO claims it has the most used scores in the industry and is used in over 90% of American lending decisions.

What is VantageScore?

VantageScore was founded in 2006 to compete with FICO. Although it is managed by itself, Equifax(r), Experian ®, and TransUnion (r), the three main credit bureaus, founded it. This is notable because these bureaus provide the credit reports that are often used to calculate credit scores.

VantageScore may not be as popular as FICO, but it claims its scoring models are unique in that they include data from all of these bureaus. According to the company, this allows it to calculate more consistent, predictable, and accurate scores.

 

What is a good credit score range?

The source of a credit score and the person evaluating it will determine how good your credit range is. Remember that lenders have their credit policies and standards for determining creditworthiness. This means that what VantageScore, FICO, and others consider good may not be the same for everyone. What is FICO?

FICO, abbreviated from Fair Isaac Corporation, is credited for creating the first standard scoring model. It was 1989. FICO has developed multiple versions of its scoring model over the past 30 years. However, FICO claims that today’s models look very similar to the original.

FICO claims it has the most used scores in the industry and is used in over 90% of American lending decisions.

What is VantageScore?

VantageScore was founded in 2006 to compete with FICO. Although it is managed by itself, Equifax(r), Experian ®, and TransUnion (r), the three main credit bureaus, founded it. This is notable because these bureaus provide the credit reports that are often used to calculate credit scores.

VantageScore may not be as popular as FICO, but it claims its scoring models are unique in that they include data from all of these bureaus. According to the company, this allows it to calculate more consistent, predictable, and accurate scores.

What is a good credit score range?

The source of a credit score and the person judging it will determine how high it is. Remember that lenders have their credit policies and standards for determining creditworthiness. This means that what FICO, VantageScore, or anyone else considers good may not be the same for everyone.

Factors that Affect Credit Scores

Credit-scoring models as well as credit reports are two significant factors in determining your credit score. It’s challenging to know the exact purpose of your credit reports.

The CFPB identifies a few key factors that “make up a typical credit score.”

  • Your payment history: What percentage of your payments have been made on time.
  • Debt: The amount of unpaid debt that you have across all accounts.
  • Credit utilization: This ratio shows how much credit you have and how much you are using it. Credit utilization is often expressed in percentages.
  • What are the types of loans available? This is sometimes called your credit mix.
  • Credit age is how long you have had your accounts open. Remember that what you see in your credit reports will determine what is considered your oldest credit line.
  • The number of times you have applied for credit recently. Although the impact on your score might not be significant, lenders may still see many hard credit inquiries as a negative sign.

What does FICO think of these Credit Factors?

FICO is particular about the credit factors it considers most important. Payment history accounts for about 35%. The total amount of debt is responsible for 30%. Other factors include credit history (15%), credit mix (10%), credit score (10%), and new credit (10%).

What does VantageScore think about these Credit Factors?

VantageScore does not give percentages but is very clear about the key components of its scoring models. It states that credit utilization is highly influential. Experience and credit mix are incredibly significant. Moderately compelling is payment history. Credit age and new credit are less effective.

What is a good credit score for my age?

Your credit score is not affected by your age. FICO and VantageScore both show that the age of credit accounts can impact how scores are calculated.

This could explain why credit scores increase with age. They have had their accounts open for more extended periods. Credit scores can fluctuate depending on your age. Good credit scores are not just dependent on your age.

What makes a good credit score valuable?

You now know some basics about how scores are calculated. However, this doesn’t explain how credit scores can be so valuable. Although credit scores are often linked to loan or credit card applications, their impact is more significant.

A good score can impact interest rates, credit limits, and housing applications. It can also affect job prospects. They can also offer more excellent options, more bargaining power, and greater financial flexibility.

Pre-Qualification, Pre-Approval, and Comparing Offers

You might be pre-approved for or qualified for additional credit card offers if you have a high credit score. This may enable you to compare offers and determine the best fit for you, whether you are looking at auto loans, credit cards, or mortgages. However, credit inquiries can harm your credit score if you shop around.

 

Credit Limits and Interest Rates

A good credit score can help you get a loan or credit card approved. It could also mean lower interest rates, higher credit limits, or both. You may also be able to pay your debt off faster if you are paying less interest. This means that borrowing money can be more affordable if you have a higher credit score.

Beyond credit cards and loans

Good credit scores can also have an impact on other areas of your life:

  • As part of rental applications, landlords might check credit scores.
  • Before hiring applicants for a job, some employers conduct credit checks.
  • Insurance companies may consider credit to establish premiums.
  • If you have good credit, utilities and cell phone providers may waive security deposits.

How to build a good credit score

It all boils down to managing your credit responsibly and building a credit score. This is also true for maintaining a high credit score. The CFPB suggests five things you can do to keep a good credit score.

  1. Pay your bills on time. You can achieve this goal by setting up automatic payments and electronic reminders of payment due dates.
  2. Don’t exceed your credit limit. Experts recommend that you keep your credit utilization below 30% across all credit card accounts.
  3. Pay attention to your credit history. Credit scores can be improved by demonstrating responsible credit behavior over a more extended period.
  4. Only apply for the credit that you need. Lenders may mistakenly believe that your financial situation has changed if you use multiple loans and credit cards in a short period.
  5. Examine your credit reports. Your credit scores are determined by the information contained in these reports. Errors can lead to lower credit scores. 
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