Table of Contents
- Good credit scores vary depending on the lender and credit-scoring model used, but 670 or above is generally a good target
- You have more than one credit score, and you may see a significant range between the three credit bureaus based on how they weigh different aspects of your borrowing behavior
- Payment history, credit utilization, and age of credit typically have the most impact on your score
- By making on-time payments, borrowing less, and keeping credit accounts open, you can gradually improve your credit scores
A good credit score helps you achieve your financial goals by securing better loan rates and terms. Achieving and maintaining a good score is one of the best things you can do for your long-term financial health.
Just what constitutes a “good” credit score, though? Although there is some variation in what lenders consider a good range — and there are different credit-scoring models — a good credit score is usually above 670 on an 850-point scale.
What exactly does that score mean, and how do you get your credit there? We’ll cover everything you need to know about good credit scores below.
Credit Score Ranges: Explained
Credit scores measure your behavior as a borrower. Lenders use different scoring models to assess your credit report and provide a credit score that grades your risk level, so they can determine whether you qualify for a loan — and what your loan terms will be.
There are various credit-scoring models, but the two most commonly used are FICO and VantageScore. Both grade your credit history on a scale of 300 to 850, but each weighs certain aspects of your borrowing behavior differently.
Both models offer ranges to classify credit scores as Very Poor, Poor, Fair, Good, Very Good, or Exceptional, and these ranges vary between the two models.
- 300–579: Poor
- 580–669: Fair
- 670–739: Good
- 740–799: Very Good
- 800–850: Exceptional
- 300–499: Very Poor
- 500–600: Poor
- 601–660: Fair
- 661–780: Good
- 781–850: Excellent
What Are The Major Credit Bureaus?
Not only are there multiple scoring models, but there are also multiple credit bureaus collecting and reporting the data they receive from lenders. The three major bureaus — Equifax, Experian, and TransUnion — all receive reports on your borrowing behavior from creditors, but not every creditor reports to every bureau.
After receiving information from lenders, each bureau compiles a credit report, which features information about your borrowing history. This includes:
- Personal identifying information (names and nicknames, addresses, etc.)
- An overview of your existing loan and credit card balances and credit limits
- New inquiries for credit applications you’ve filed
- Any bankruptcies you’ve had
- Unpaid child support or alimony
- Collections accounts for debts you’ve failed to pay
When a lender requests your credit report from one of the bureaus, the bureau will issue the report with a score that reflects its own scoring model or a FICO or VantageScore model. Your lender might request reports from each of the bureaus and use an average of the three scores to determine your loan terms and interest rate.
Factors That Impact Your Credit Score
So, how exactly does each element in your credit report affect your credit score? Again, it varies depending on the model used, but the key factors are all the same.
Key Influencing Factors
Of all the factors shaping your credit score, your payment history, credit utilization ratio, and the age of your credit have the biggest impact. Payment history reflects how frequently you pay on time and whether you have made any payments more than 30 days late.
Your utilization ratio measures your current balances on revolving accounts (like credit cards) as a percentage of your total revolving limit. So, for example, if you have $2,000 in credit card balances and limits totaling $10,000, your utilization ratio is 20%. A lower ratio is seen as less risky, as it indicates you can pay off your balances.
Finally, the average age of your credit reflects how long you’ve been borrowing and how old your accounts are. A shorter credit history is seen as riskier because you haven’t established years of good borrowing habits.
Credit mix and new credit inquiries are less influential on your total score, but they’re still important, according to lenders. Your credit mix reflects whether you have a healthy balance of different types of credit accounts, such as installment loans (e.g., mortgages) and revolving credit accounts (e.g., credit cards). Lenders like to see that you don’t rely too heavily on one type of credit. VantageScore weighs this factor more heavily than FICO does.
Applications for new credit also impact your score. When you submit an official application, lenders file what’s known as a “hard inquiry” to get your credit report and determine your creditworthiness. Each of these inquiries will knock your score a small amount.
Other Negative Factors
Lenders also look at other red flags on your credit profile when determining your score. If you’ve had any bankruptcies or debts sent to collection, these can be particularly damaging to your credit history in the short term. Although your credit report changes every month based on your credit activity, negative information will stay on your report for seven to 10 years.
How To Improve Your Credit Score
If you’re saddled with a poor or fair credit score, don’t lose hope. It’s important to remember that credit scores reflect your recent credit history, and you can improve them with a little work and attention to your financial habits.
Because payment history and credit utilization are such influential factors, the best way to improve your credit score is to ensure you pay on time and keep your credit balances low. Even a single late payment can dramatically impact your score, and lenders like to see your credit utilization ratio below 30% — the lower, the better.
It’s also a good practice to leave credit cards open even when you’re not using them. This helps improve your utilization ratio and increases the average age of your credit, both of which can positively affect your score. Be sure to avoid applying for new credit too often, as well. A few applications with different mortgages at once won’t have a major impact, but regularly applying for new credit cards won’t help you achieve a good credit score eventually.
Finally, it’s a good idea to review your credit report regularly and dispute any errors that might damage your score. You can get an annual free copy from each bureau at AnnualCreditReport.com.
Benefits Of Having A Good Credit Score
You may wonder if all this effort is worth it. Does a good credit score really matter?
Absolutely! A good credit score can be the difference between qualifying for a mortgage or having your application rejected. Even if you qualify, a lower score may lead to much higher interest rates or a lower maximum loan offer. Good credit scores help you get better terms and save more on borrowing costs in the long run.
Your credit report can also affect rental and job applications. Landlords can use your credit to determine whether you’re a risky tenant, and a good score helps ensure you can get approved for a lease. Although employers are limited in how they can use your credit report, it’s important to be sure all information on your report is accurate, as we’ll explore more below.
The Myth Of The Perfect Credit Score
While it’s important to strive for a good or excellent credit score, it’s also critical to keep the benefits in perspective. Lenders may reserve some of their best terms for borrowers with excellent scores, but many of the biggest perks are available to borrowers with good credit.
In other words, there’s little to be gained by fastidiously working on your credit score once it’s well into the 700s. Achieving a perfect 850 is nearly impossible — and it likely won’t earn you noticeably better terms.
Focus instead on establishing healthy borrowing habits, borrowing within your means, expanding your credit mix, and paying your bills on time. If you do these things, you’ll gradually gain access to better terms, lower interest rates, and more financial freedom.
How Employers Use Credit Scores
Many consumers aren’t aware that employers may run a credit check on prospective employees. These credit checks aren’t hard inquiries — they’re known as “soft inquiries” and give employers a more limited look at your credit profile.
With a soft pull, your employer can see an overview of your credit accounts, key personal identifying information, and any accounts in collections. The report won’t include your loan balances or credit scores, but employers can use this basic information as a determining factor in whether to offer you a job or a promotion. That’s why it’s always a good idea to review your credit report and correct any errors before you apply for a new position.
Although employers can use your credit history when making hiring decisions, they still must respect local, state, and federal laws governing how they handle the process. Many states limit how employers can use the information, and the Fair Credit Reporting Act is binding everywhere in the U.S. Under the Act, employers must get your permission to check your credit, and they have to give you time to dispute any negative information in your report that impacts their hiring decision.
Frequently Asked Questions (FAQs)
What Is Considered A Good Credit Score?
The threshold for a good credit score varies by lender and the type of scoring model used. For a FICO score, 670–739 is the range for a good credit score, while 661–780 is considered a good VantageScore.
What Is The Minimum Credit Score Required To Get A Loan?
There is no single minimum score needed to get a loan. Different lenders have different criteria, and some loans are designed for borrowers with poor credit. Lenders also consider your credit score alongside other factors such as your total debt-to-income ratio, income, and employment status.
How Can I Check My Credit Score For Free?
Although you can get a free annual credit report from each credit bureau, these reports won’t include your score. Many credit card companies and financial institutions now offer free FICO or VantageScore scores to customers, however. These scores are often available simply for signing up for an online account.
Can I Have Different Credit Scores From Different Credit Bureaus?
Yes. Each bureau uses a different scoring model, and this can lead to significant scoring variations.
Does Closing A Credit Card Account Affect My Credit Score?
Closing a credit card can hurt your credit score in the short term. After you close the account, your total available credit will decrease, causing your utilization ratio to go up. Likewise, the average age of your accounts may increase if the card is older. Both of these factors can have a significant impact on your credit score.
How Long Does It Take To Improve A Credit Score?
The time it takes to see results for improving your credit habits will depend on the negative factors hurting your score in the first place. Lowering your credit utilization can boost your credit score in as soon as a month, but it may take much longer to overcome a history of late payments or several accounts in collections.
Does Paying Off Debt Improve My Credit Score?
In the long run, paying off debts is good for your credit score. However, in some cases, your score could drop briefly after you pay off certain debts. For example, if you pay off a credit card and close the account, your utilization ratio will increase and your average age of credit will decrease. Similarly, paying off your only installment loan could hurt your credit mix. In time, your score will bounce back, but it’s important to know how your actions will affect your credit.
Is It Possible To Have A Good Credit Score With No Credit History?
If you’ve never opened a loan or credit card, you may not have any credit history. In that case, you’re considered “credit invisible,” meaning you have no score. Even if you’ve been responsible with your money, this can hurt you when you apply for a loan. It’s a good idea to build some credit history to show lenders you’re a responsible borrower.
Can My Credit Score Affect My Job Prospects?
Yes, employers can look at a limited version of your credit report and use it to inform their decision. However, the Fair Credit Reporting Act and numerous state and local laws govern how employers can use this information.
What Should I Do If There Are Errors On My Credit Report?
If you find any inaccurate information on your credit report, you should correct it as quickly as possible. Contact the credit bureau and any lenders that reported the inaccurate material to learn the steps you can take to fix the errors.