We all want good credit because it means we can borrow more while getting better rates and terms. It can also save us money on insurance and even help us land a job.
However, one does not simply get good credit. You must earn it, and that takes time, discipline, and effort.
But what is the benchmark you should be aiming for? What credit score is the magic number that means you have “good” credit? According to credit bureau Experian, a credit score of 700 or above is considered “good.”
Let’s take a closer look, though, because the answer is not that simple.
What is a good credit score range?
According to the FICO model, a “good” credit score will be somewhere between 740 and 799. As for VantageScore, a “good” credit score can be as low as 700 and up to 749.
Credit scores can vary because not all lenders report to all three credit bureaus. They also may update their client information at different times, which can impact scores from bureau to bureau. And lastly, credit bureaus may have different scoring mobiles.”
You may be surprised when you check with the various credit bureaus and see different scores. Katie Ross, Manager of Education and Development and Housing at American Consumer Credit Counseling (ACCC) says, “Credit scores can vary because not all lenders report to all three credit bureaus. They also may update their client information at different times, which can impact scores from bureau to bureau. And lastly, credit bureaus may have different scoring mobiles.”
What is a fair to good credit score?
First let’s answer, what is a “fair” credit score?
According to FICO, it is a score between 580 and 669. VantageScore has a bit higher standard, setting the range from 650 to 699. If you are in this range, you are considered “subprime.” That means you are riskier to lend to, but still may be able to borrow at higher rates.
A “fair” to “good” score would be at the top of this range and into the “good” range, so somewhere between 650 and 750 for FICO, and 675 and 775 for VantageScore.
What is a bad credit score?
A “bad” credit score would be any score in the “poor” to “very poor” range. FICO defines credit scores as “very poor” if they are between 300 and 579. VantageScore defines “very poor” scores as those that range from 300 to 549 and “poor” scores as those ranging from 550 to 649.
So, many people wonder if a credit score of 580 is considered good. According to these models, the answer is no; a 580 score is not “good.” It is considered “fair” by the FICO model (barely!), but “poor” by the VantageScore model. However, you can still get approved for a mortgage with as low as 3.5% down with this score.
While these scoring models can give you a benchmark of what a “good” credit score is, it can be relative depending on what you are trying to do. For example, you may want to ask, “What is considered a good credit score when buying a house or applying for an auto loan?”
There are programs in place, such as those for first-time home buyers, that can make it possible to get what you want even without a “good” score.
How do I get a good credit score?
If you want to get a good score, you need to know how the calculation of the scores works.
Ross says, “Credit scores are made up of factors and all these factors are what determines one’s score:
- Payment history (about 35% of the score)
- Amounts owed on credit accounts (about 30% of the score)
- The length of credit history (about 15% of the score)
- New credit (about 10% of the score)
- Types of credit (about 10% of the score)”
Note that FICO discloses how important each factor is to your score while VantageScore does not. Here’s a closer look at each of these factors and how to take actions that result in a good credit score.
1) Payment history
Your payment history is the largest factor in your FICO score. To do well in this category, you have to make on-time payments to any credit accounts you have, such as credit cards, auto loans, student loans, home equity loans, etc. Ross says, “Making payments consistently on time indicates responsibility.”
Making payments consistently on time indicates responsibility.”
All of your accounts will be analyzed to determine how many accounts you have, how many have been paid on time, the number of late or missed payments, public record items, and collections.
If you are late on payments or miss them, your score will be impacted by how late the payments are, how much you owe, how recently they were late, and how often lateness occurs.
There’s a lot disclosed in this information about the level of risk you present, hence its weight in the FICO score.
2) Amounts owed on debt and credit
The next factor is credit utilization, and it accounts for the second largest amount of your FICO score. This category looks at revolving credit accounts to determine how much of your total available credit line you are utilizing.
A large number of accounts with balances may indicate that you are over-extended”
How you manage the amount of credit extended to you speaks to your level of self-control and responsibility. Further, “A large number of accounts with balances may indicate that you are over-extended,” explains Ross.
It’s best to keep your credit utilization at 30% or less. Learn more about how to lower your credit utilization ratio.
3) Types of credit used
The type of accounts you have is also an important factor. You should have both revolving accounts (like credit cards and credit lines) and installment accounts (like an auto loan, mortgage, and personal loan). Creditors like to see a few of the different types of credit lines being managed well.
4) New credit
Next up is the amount of new credit you have. This looks at how many new accounts you have opened in relation to the total amount of accounts in your credit file. It also looks at how many hard credit inquiries you have allowed and the time since the last one.
They want to know if you are applying for a lot of credit at one time, because “opening several accounts in a short period can indicate greater risk,” says Ross.
With this being the case, be discretionary when applying with companies and opening credit lines. You only want to allow a creditor to pull your credit report when you are really serious about opening a line of credit.
Many lenders now allow you to get pre-approved through a soft credit pull that won’t impact your credit score, which is a better option when shopping around.
5) Length of credit history
Lastly, is the length of your credit history. The longer you’ve maintained credit accounts well, the more trustworthy you appear. Ross says, “A longer credit history generally increases the score.”
They will look at how long your oldest and most recent accounts have been open for. Keeping your accounts open, particularly your older accounts can help improve your credit score. Of course, you may decide that keeping a credit card with a large annual fee is no longer worth it to you even if it means a small drop in your score.
Lastly, Ross adds, “Here are some ways to begin to improve your credit scores:
- Pay bills on time
- Eliminate credit card balances
- Check for accuracies on your report
- Clear up any collections accounts
- Fix any late payments
- If you don’t have credit, open a card and make small purchases and pay off monthly
- Limit applications for credit.”
Ready to get your credit score into the “good” range?
Improve your credit score
Now that you know what a “good” credit score is and how to get it, the next step is to start tracking. By keeping tabs on your score and how the actions you take impact it, you can ensure it moves in the right direction.
Several companies offer credit reporting services that not only tell you your scores, but also help you improve them, provide alerts when changes occur to your credit data, and some even provide identity theft insurance.
All of this can help to streamline your path to good credit.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.