What is a Good Credit Score?
You may already know that building a healthy credit history and having a good credit score can help you qualify for more financial products with lower rates and better terms. But what qualifies as good credit isn’t always clear.
In this post, we’ll explain:
What is a good credit score?
FICO and VantageScore, the two primary credit-scoring companies in the U.S., share some basic guidelines for what they consider to be poor to excellent credit-score ranges. These aren’t definitive guides because lenders, credit card issuers or other types of creditors may have their own definitions as to what qualifies as a good or bad credit score. But they can give you a clue as to where you currently stand.
What is a good base FICO score?
FICO is the industry leader when it comes to consumer credit scores in the U.S. The base FICO credit-scoring model is the one most people think of when they’re referring to a FICO credit score, or even credit scores in general.
A good FICO credit score is anything above 670 while a “very good” credit score is 740 and above.
The base model periodically gets updated, and the most recent version is the FICO Score 9, although lenders may still use FICO Score 8 or another previous version. Your base FICO score can range from 300 to 850, and the following guideline applies to both FICO Score 8 and FICO Score 9 models.
|Good Base FICO Score|
What is a good FICO industry-specific score?
In addition to its base scoring models, FICO creates industry-specific credit scores for credit card issuers and auto lenders. The scoring model is similar to that used to determine your base score. However, your industry-specific score could be more heavily influenced by your history with a related account, such as your history of making on-time auto loan payments. The FICO Auto Score and FICO Bankcard Score credit scores range from 250 to 900.
|Good FICO Industry-Specific Score|
What is a good VantageScore credit score?
VantageScore is a credit-scoring company that competes with FICO. While FICO is still the industry leader, over 2,200 financial institutions use VantageScore credit scores, including 10 of the largest credit card issuers.
A VantageScore of 700 or higher is usually considered a good score while anything above a 750 is deemed as excellent.
|Good VantageScore Credit Score|
How is my credit score calculated?
Your credit score is calculated based on the information in one of your credit reports from either TransUnion, Experian or Equifax.
Understanding the scoring factors can help you determine what actions could impact your scores, and what you can do to improve your credit.
The general categories for credit-scoring factors are:
- Payment history (35% of your FICO score). On-time payments can help your credit scores, while late payments, bankruptcies, foreclosures and other indications that you didn’t pay a bill on time could hurt your scores.
- Current credit use (30% of your FICO score). Only using a small portion of your available credit could help your scores, while maxing out credit cards could lead to lower scores.
- Length of credit history (15% of your FICO score). Having a lengthy credit history with a high average age of accounts could help your scores. If you’re new to credit, it could be more difficult to get an excellent score.
- New credit (10% of your FICO score). Opening a new account could help your current credit use and payment history, if you make on-time payments. But opening too many accounts may hurt your credit scores.
- Types of accounts (10% of your FICO score). Having experience with different types of credit accounts may increase your credit scores.
A credit-scoring model will analyze the data and come up with your three-digit score. Because scoring models may use different scoring criteria, and your credit reports may have different information, the score you receive can depend on the model as well as the credit report it analyzed.
For example, you may have a 760 VantageScore 3.0 based on your TransUnion credit report, but a 768 VantageScore 3.0 based on your Equifax report. The same model resulted in a different score because they were calculated using different credit reports.
Or, if you use data from the same Experian credit report, you could still wind up with a 682 FICO Score 8 (a base FICO score) and a 690 FICO Auto Score 8 (an industry-specific FICO score), since the models are different.
If you’re looking at results based on the same scoring model and see big differences in your scores, that could be an indication that there’s an error in one or more of your credit reports. You may want to carefully examine your credit reports and dispute any errors you find, or hire a credit repair organization to help you with the process.
Small differences aren’t generally a cause for concern, especially if you’re comparing a FICO and VantageScore, as one person’s credit scores are often a little different. However, most FICO and VantageScore scoring-models use similar scoring factors to determine your credit score. This is why you may see all your scores increase or decrease at a similar rate over time.
Why is a good credit score important?
Having a good credit score could help you in many ways. It could be a requirement for renting a home, and in some states, it may lead to lower insurance premiums.
But the biggest benefits may come about when you go to apply for a new loan, line of credit or credit card. Having a high credit score can increase your chances of getting approved and can lead to a lower interest rate and better terms on your account.
If your score is too low, you might not be able to get approved at all. Some creditors even publish a cutoff point that your score needs to be above to qualify for loan. For example, you’ll need a FICO score that’s at least 580 to qualify for an FHA home loan with a 3.5% down payment, or 500 and higher if you can afford to put 10% down.
However, it can be more difficult to determine the credit score you need for the lowest advertised rate. In fact, a good to excellent credit score may be one requirement, but your rate could also depend on other factors, such as your debt-to-income ratio.
Credit score requirements may also vary depending on the lender and type of financial product you’re seeking.
Good credit score for mortgages
The minimum credit score you need to qualify for a mortgage can vary based on the type of mortgage you’re trying to get.
Some government-backed mortgages have clear minimum score requirements.
- FHA loans require at least a 580,
- USDA loans may require a 640 unless there are extenuating circumstances.
- VA loans don’t have a preset minimum, although lenders that offer VA loans may have a minimum credit score requirement.
- For a conventional, non-government-backed loan, you may need a credit score of at least 620 to qualify.
The mortgage industry is also different than other lending spaces because Fannie Mae and Freddie Mac dictate the minimum credit scores for the mortgages they buy — what are known as conforming loans.
The minimum score requirement varies depending on how much money you’re borrowing relative to the home’s value and your debt-to-income ratio. The lowest eligible score for a primary residence is 620 to 700 depending on these factors.
Conforming loans also require underwriters use older versions of FICO’s base credit-scoring models. And the mortgage underwriter will generally request three FICO scores, one based on each of your credit reports, and use the median score to evaluate your application.
However, with every type of mortgage, qualifying with the minimum allowed score won’t likely get you the best rates. For those, your credit score may need to be in the very good to excellent range, e.g., 740 or higher.
Good credit score for auto loans
Getting an auto loan can be a little different than a home loan. Auto lenders may choose from a variety of different credit scores when evaluating applicants, such as a VantageScore, a base FICO score or an auto industry-specific FICO score.
You may be able to get approved for a new or used auto loan with a poor credit score, or no credit score, but your interest rate could be in the double digits. If your score is very good or better, you may find auto loans with an interest rate around 3% to 4%.
Experian Automotive, a provider of automotive credit and financing data, sets its top FICO score ranges at 661-780 and 781-850, slightly different than FICO’s ranges shown above. It found that in the fourth quarter of 2017, 60% of new and used auto loans were given to consumers with a score of 661 or higher. The average score for someone buying a new vehicle was 713.
The credit score requirements may be a little lower for used auto loans. The average credit score for those taking out a loan to buy a used vehicle was 656 according Experian. Although with both new and used auto loans, a higher credit score could mean having to put less money down when you make the purchase.
Good credit score for personal loans
Lenders that offer unsecured personal loans share their minimum score requirements. Generally, the best personal loans for people with bad credit still require a FICO score of around 600 or higher. However, some lenders may approve an applicant who has a score as low as 500.
Getting the best rates may require a very good to excellent credit score, a high income relative to your debt and a clean credit history (e.g., no recent late payments).
How to get a good credit score
Whether you’re brand new to credit, have established credit or made a few mistakes and are trying to rebuild your credit, the same principles and practices apply to getting and keeping a good score.
Pay your bills on time
Paying your bills on time can be one of the most important factors in building a good credit score because the “payment history” category can account for about 35% of your credit score.
Having a history of on-time payments can help show other creditors that you’ve been responsible in the past. On the other hand, late payments can hurt your credit.
Falling behind on bills that don’t usually affect your credit score, such as your utility payments, could actually hurt your credit score if the company sends your account to collections.
Generally, you have 30 days after a bill’s due date before a late payment will be reported to credit bureaus. However, creditors may charge late fees or even put your account into default before the 30-day mark.
Keep revolving credit account balances low
The current credit use category accounts for about 30% of your credit score. A large part of this category depends on how much of your credit limit you’re using on your revolving credit accounts. This is also known as your utilization rate.
You can calculate your utilization rate by adding up the sum of your balances on revolving credit accounts (such as credit cards and revolving lines of credit) and dividing that by the sum of the credit limits on those accounts.
While there isn’t necessarily a best utilization rate, you may read recommendations to keep your utilization rate below 30%. Just remember, a lower utilization rate is generally better for your score, and if you can pay down debts your score could go up.
Open new credit accounts, but don’t go overboard
Applying for new credit could result in a hard credit inquiry, which might ding your credit score. And frequently applying for new credit could signal that you are a higher-risk borrower because you’re relying on credit often.
A potential hard inquiry shouldn’t necessarily deter you from applying for new credit or comparing multiple loan offers. As long as you pay the bill on time, the small drop in your score from a single hard inquiry will generally be offset by other factors within a couple of months.
Credit-scoring models also recognize that consumers want and benefit from shopping around before taking out a loan. Typically, multiple hard inquiries from mortgage, auto and student loan applications only count as a single inquiry by the credit-scoring model if they occurred within a 14- to 45-day period.
If you don’t have at least one credit card, opening a new card and adding it to your credit mix could help your credit score. An installment loan, like a personal loan, might also help, but it’s generally not worth taking out a loan unless you need the money because you’ll have to pay interest on the loan. On the other hand, you can avoid paying any fees on a credit card if you find one that doesn’t have an annual fee and you pay off your balance in full every month.
Fitting with the other tips, try to only use a small portion of your card’s credit limit and always pay the bill on time. Also, don’t go overboard and open a lot of credit cards at once. Doing so could hurt your score, especially if you’re new to credit.
Look for help if you need it
If you’re struggling with bills, collection accounts or finances in general, you may want to reach out to a nonprofit credit counseling organization that’s accredited by the National Foundation for Credit Counseling (NFCC). It could help you create a manageable budget, offer suggestions for your best next step and may even be able to negotiate a new payment plan with your creditors.
While your budget, interest rates and monthly payment amounts aren’t credit-scoring factors, taking steps to minimize debts could help you build a healthy credit history filled with on-time payments.
Find out your credit score
Your credit scores may frequently change, and monitoring your credit could help you determine if and when you should apply for a new loan or credit card, and whether you’re on the path to an excellent score. Seeing an unexpected drastic drop in your score could also tip you off to potential identity theft, as it may be caused by someone opening an account in your name and never making a payment.
Checking your credit won’t affect your credit scores, and you can check your VantageScore 3.0 based on your TransUnion credit report for free with My LendingTree.
To get your free FICO score, try a free tool like the Discover Credit Scorecard, or check with your credit card issuers. Many card issuers offer a free FICO score as a benefit to card users.