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What is considered a good credit score?
What’s considered a good credit score depends on who you’re asking. Lenders have different credit score requirements that they use to decide who can open an account and receive the best rates.
Complicating the issue, lenders and credit bureaus use two competing credit scoring models, which themselves categorize scores in different ranges as “good”:
Note that both models feature credit scoring ranges that span from the lowest possible credit score of 300 to the maximum credit score of 850. Each model has its own way of categorizing bad, fair, good, and excellent credit scores. Anything higher than the ranges given above is considered “very good,” “exceptional,” or “excellent.”
Lenders and creditors use credit scores to determine how likely you are to pay back the money you borrow. A higher score means lower risk for your lender and a better chance of you getting the best rates and terms.
Is 700 a good credit score?
A credit score of 700 will allow you to get most types of credit, including standard loans and credit cards. However, it might not be enough to get the rates and terms, which are often reserved for “superprime” borrowers (people with credit scores of 720+).4 Lenders may also consider criteria other than your credit score (such as your income and employment status), which could affect your eligibility for certain types of credit.
What is a good credit score according to each scoring model?
As mentioned, FICO and VantageScore are the two main credit scoring models used by U.S. lenders, and each has its own way of categorizing scores.
What is a good FICO credit score?
Standard FICO scores range from 300 to 850 and fall into the following categories: 1
|300 to 579||580 to 669||670 to 739||740 to 799||800 to 850|
Your FICO score is arguably your most important credit score. It’s the one that lenders most commonly use when deciding whether to extend credit and what rates and terms to offer.5
According to an Experian report, in 2020, 69% of people in the U.S. had a credit score in the “good” FICO range or higher.6 This demonstrates that “good” doesn’t necessarily mean “above average” when it comes to credit scores.
What is a good VantageScore credit score?
Like FICO scores, credit scores in VantageScore’s newest models (3.0 and 4.0) also range from 300 to 850 and fall into the following categories:
|300 to 499||500 to 600||601 to 660||661 to 780||781 to 850|
While VantageScore’s range for good credit scores is wider than FICO’s, the average VantageScore in the U.S. is lower than the average FICO score, standing at only 694 as of July 2021.7
Nevertheless, most people still have a good credit score in VantageScore’s model; 55% of people have a score above 700.8
What makes a good credit score?
A good credit score reflects a well-established and positive credit history.
There are a few staple characteristics that you’ll find on the credit reports of people with good credit scores:
History of on-time payments
Your payment history is the most influential factor that determines your credit score. Consequently, making sure that you pay all your bills on time is one of the best ways to improve your credit score.
Low credit balance on revolving accounts
In FICO’s model, the second most important factor that contributes to your credit score is your credit utilization rate, which is the percentage of your available revolving credit that you’re using.
To get a good credit score, keep your credit card balances as low as possible. Ideally, your credit utilization rate will be under 10%. For example, according to FICO, in 2019, people with the maximum credit score of 850 had an average credit utilization rate of 4.1%. 9
In addition to the overall credit utilization rate across all of your accounts, the individual utilization rate for each account also contributes to your credit score. Aim to distribute your debts so that your utilization rate is below 30% for each account.
Long credit history
A long credit history is a testament to your reliability as a borrower. Your credit score factors in the average age of your credit accounts and the age of your oldest and youngest accounts.
You’ll have a better credit score if your accounts are relatively old. For example, FICO reported that on average, the oldest account owned by people with perfect FICO scores was 30 years old. 9
The best way to establish a long credit history is to open credit accounts as early in your adulthood as possible and avoid opening new accounts whenever possible.
Healthy mix of credit account types
Having a mix of different types of credit boosts your credit score because it demonstrates your ability to manage different types of debt.
Specifically, a good credit score reflects a mix of these two types of credit accounts:
- Installment loans: This is a type of debt that you repay in installments, usually over a fixed repayment period. Installment loans can be secured loans or unsecured loans. The most common types of installment loans are auto loans, personal loans, mortgages, and student loans.
- Revolving credit accounts: This is a type of credit that you can repeatedly withdraw from up to a certain limit. Credit cards are the most common type of revolving account, although store credit and home equity lines of credit (HELOCs) also fall into this category.
Open accounts (e.g. utility accounts) are another type of credit, but they don’t contribute to your credit mix. Although credit mix is one of the least influential categories that contributes to your credit score, having at least one revolving and installment account will still give your score a boost.
In general, how many credit cards and loans you should have depends on your financial situation. It’s best to only open accounts that you actually need to keep your finances simple and avoid missing payments.
A limited number of new credit accounts
There are two ways that opening a new credit account can cause a temporary drop in your credit score:
- It results in a hard inquiry: Applying for credit usually triggers a hard inquiry, which will lower your score for up to 12 months and stay on your credit report for two years. 10
- It lowers the average age of your accounts: As mentioned, opening a new account will lower your score until the account has sufficiently aged.
With that said, new accounts can positively contribute to your credit utilization rate (by increasing your total credit limit) and your credit mix, which can counteract these negative effects in the short term. In the long term, they can benefit your credit score by contributing to your payment history (if you properly manage them).
Why do you need a good credit score?
Having a good credit score has many benefits, and taking steps to improve your credit will usually save you money and hassle in the long term. Here are a few things you might want to do that’ll require a good credit score.
Buy a house
Generally speaking, you need good credit to buy a house. This is because taking out a mortgage is usually part of the process of becoming a homeowner. Your credit score will determine which mortgages you’re eligible for as well as the interest rates and terms you’ll be able to get.
For example, FHA-backed loans, which are arguably the easiest mortgages to get, require a credit score of at least 500, and if your score is below 580, you’ll have to pay a down payment of 10%. (If your score is 580 or above, you’ll be eligible for a down payment of 3.5%.)11
Although there’s no universal minimum credit score required for conventional mortgages, many lenders won’t accept a score lower than 620, which is the minimum credit score required by the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).12 13
Rent an apartment
Many landlords check your credit when deciding whether to approve your rental application. The minimum credit score you’ll need to rent an apartment depends on the location, the type of property you want to rent, and your landlord’s own requirements.
Your options will probably be limited if you have a credit score in the fair range or lower. However, the landlord is required to notify you if your credit score played a role in their decision to reject your rental application.14
Get a car loan
There is no universal credit score required to get an auto loan. However, if you have a bad credit score, then it’ll be hard to find a lender who’s willing to work with you.
Additionally, if you have a good credit score, you’ll be eligible for better interest rates, which could save you a significant amount of money over the life of the loan.
For example, according to a 2020 report by Experian, if you have a credit score in the range of 781–850, you can expect to get interest rates of around 3.80% for a used car loan and 2.65% for a new car loan. Conversely, you’ll probably get interest rates closer to 10.13% and 6.64% if you have a credit score in the range of 300–500.15
Apply for insurance and credit cards
Insurers can and will check your credit in most states, and they’ll use your credit score to determine how much to charge you for your insurance policy. This is because insurance companies view your credit score as a good indicator of the risk that you’ll file a claim in the future.
A good credit score also gives you access to credit cards (business and personal credit cards alike) with low-interest rates and rewards. These cards can help you save money in the long term if used responsibly.