What is a Good Credit Score?
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When you apply for new financing, like a personal loan or credit card, the lender has to determine whether you will be likely to repay the debt as promised. To help answer this question, the lender will most likely review your credit score. Credit scores, like your FICO Score, provide an easy, consistent way for lenders to determine the risk of doing business with you.
What is a FICO Score?
Your credit scores are derived from information lenders provide to the big three credit bureaus — Equifax, Experian and TransUnion — that is collected in your credit reports. Your credit reports include your borrowing history, including type of account (revolving or installment), amounts owed, payment history, open and closed dates and more. This information is fed into an algorithm, which makes up your FICO Score.
FICO Scores range from 300–850. They predict the likelihood that you’ll pay a credit obligation 90 days late or more during the next 24 months. The more likely you are to pay on time, the higher your FICO Score will be.
In the United States, 90% of top lenders use FICO Scores to evaluate new financing applications. Some lenders use VantageScore credit scores as well, a competing credit score brand created by the three major credit reporting agencies.
What does a good FICO Score mean?
FICO Scores fall into five different ranges — poor, fair, good, very good and excellent. Just as beauty is in the eye of the beholder, the interpretation of your FICO Score depends on who you ask. In general, a FICO Score of 670 or above typically qualifies as “good.” If your FICO Score climbs to 740 or higher, it’s “very good.” And FICO Scores between 800-850 range are “exceptional.”
With good FICO Scores, you have a better chance of qualifying for loans, credit cards, new apartment leases and more. Plus, higher FICO Scores can often save you money in the form of lower interest rates and lower fees. Any time your FICO Score crosses over into a better range (as determined by the individual lender), there’s a chance you may unlock better financing offers.
The base FICO scoring model periodically gets updated. The most recent version is the FICO Score 10, although FICO Score 8 is still the most commonly used. The following guideline applies to both FICO Score 8, FICO Score 9 and FICO Score 10 models.
|Good Base FICO Scores|
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 scores|
Why is a good credit score important?
Having a good credit score has the potential to help you in many ways. It could be a requirement for renting a home, and in some states, good credit may lead to lower insurance premiums.
But the biggest benefits of good credit are 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 when you borrow money.
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 at least 500 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 just one requirement. Your actual 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. For example, many credit cards advertise an interest rate range for new applicants. While you may assume that if you have a high credit score you’ll qualify for the low end of the range, that’s not always the case, and you won’t know what your APR will be until after you’re approved. But when you apply for a loan, you’ll be provided with your interest rate before you sign on the dotted line.
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 a credit score of at least 500 (with a 10% down payment).
- 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 (often 620 or higher).
- 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 from other lending spaces. In the mortgage world, the GSEs (government-sponsored enterprises) Fannie Mae and Freddie Mac dictate the minimum credit scores for the mortgages they buy. There 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 may be 620 to 700 depending on these factors.
Conforming loans also require underwriters use older versions of FICO scoring models. And the mortgage underwriter will generally request three FICO Scores, one based on each of your credit reports, and use the middle score (not the highest or lowest) to evaluate your application.
However, with every type of mortgage, qualifying with the minimum allowed score won’t likely get your best rates. For those, your credit score may need to be in the very good to exceptional 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 4% or lower.
According to Experian, one of the three major credit reporting agencies, the top FICO Score ranges for auto loans are slightly different from the standard score ranges shown above. Per Experian, the top two FICO Score ranges in this category, prime and super prime, start at 660 and 720 respectively.
Borrowers with better credit scores can traditionally nab better credit scores. Of course, other factors like the type of vehicle (new versus used), your repayment term and your debt-to-income ratio may also influence your auto loan rate. A higher credit score could mean having to put less money down when you make the purchase as well.
Good credit score for personal loans
Lenders that offer unsecured personal loans often share their minimum score requirements. Generally, personal loans for people with bad credit still require a FICO Score of around 600 or higher. However, some lenders may approve an applicant with a score as low as 500.
Getting your 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).
What is a good VantageScore?
VantageScore is a credit-scoring company that is generally considered to be FICO’s chief competitor. And while FICO is still the industry leader, it’s worth paying attention to your VantageScore credit scores, too. Over 2,500 companies use VantageScore credit scores. Between July 1, 2018 and June 30, 2019, around 12.3 billion VantageScore credit scores were issued.
Like FICO Scores, VantageScore versions 3.0 and forward also feature a score range of 300 to 850. A VantageScore of 661 or higher is usually considered a good score while anything 781 and up may be deemed as excellent.
|Good VantageScore Credit Scores|
Want to see how your personal VantageScore measures up? You can access a free VantageScore credit score courtesy of My LendingTree.
How is my credit score calculated?
Your credit score is calculated based on the information in 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 are the most important factor in determining your credit scores, while late payments, bankruptcies, foreclosures and other indications that you don’t pay your bills on time hurt your scores.
- Current credit use or credit utilization ratio (30% of your FICO Score). Using only a small portion of your available credit can help your scores, while maxing out credit cards can lead to lower scores. Financial experts recommend not using more than 30% of your available credit at any time.
- 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, know that it takes time to build 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 and keep your credit utilization rate low. But applying for or opening too many accounts in a short period of time will hurt your credit scores as each hard inquiry negatively impacts your credit score.
- Types of accounts (10% of your FICO Score). Showing that you can responsibly handle different types of accounts, such as credit cards and loans, will positively affect your credit scores.
A credit-scoring model will analyze the data on your credit report and come up with a three-digit score that predicts your risk. 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.
If you’re looking at results based on the same scoring model and see big differences in your scores, they could be an indication that there’s an error in one or more of your credit reports. You want to carefully examine your credit reports and dispute any legitimate errors you find, such as accounts that are not yours or a name mix-up.
Small differences aren’t generally a cause for concern, especially if you’re comparing a FICO Score and VantageScore. It’s pretty normal for a person’s credit scores to be a little different between multiple credit reports. 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.
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, every time. Your payment history accounts for 35% of your FICO Score. Having a history of on-time payments shows other creditors that you’ve been responsible in the past while late payments can drag down your score and make you look riskier to future lenders.
- Keep credit card balances low. The current credit use category accounts for about 30% of your FICO Score. A large part of this category depends on your utilization rate — how much of your credit limit you’re using on your revolving credit accounts. A lower utilization rate is better for your score, and if you can pay down debts, your score should rise.
- Have a mix of credit accounts. Ten percent of your FICO Score is based on the mixture of account types on your credit report. You shouldn’t rush out to apply for a mortgage or auto loan just to mix things up on your credit report. However, adding a credit card or an installment account (like a credit builder loan) to a credit report that’s missing these types of accounts may be worth considering in certain situations.
- Start your credit journey early. If you’re building credit from scratch, some helpful types of accounts to start with may include:
- Student cards
- Secured cards
- Become an authorized card user
- Get 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). A reputable credit counselor 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 (known as a debt management plan).
Where can I access my credit score?
In addition to My LendingTree, which offers the VantageScore, there are several ways you may be able to access your credit score for free.
First, your bank or credit card issuer may offer you free monthly access to your credit score as a customer service benefit. For example, if you have a credit card or bank account through American Express, Bank of America, Barclays, Chase, Citibank, Discover, PNC Bank or Wells Fargo, you may be able to access your credit score via your online customer portal.
Want to check your FICO Score specifically? Some card issuers offer this benefit while others may give you access to your VantageScore credit scores. Additionally, here’s a list of financial institutions that belong to the FICO Score Open Access Program.
Certain credit card issuers offer free credit scores to the general public as well, not just card holders. At Discover, you can access your FICO Score for free online with Discover Scorecard, even if you aren’t a Discover customer. Capital One also offers a free VantageScore 3.0 with CreditWise to consumers. American Express just released MyCredit Guide and Score Goals, a free credit score (VantageScore 3.0) and report (TransUnion) service available to any consumer.
Finally, you can visit Experian online to access a free copy of your FICO Score each month. The other two major credit bureaus, Equifax and TransUnion, either require you to sign up for a free trial or make you hand over your credit card information to enroll in a paid credit monitoring service. So, it’s probably best to avoid those options if you’re searching for a free credit score resource.