You’ll need strong credit to purchase a car, apply for a rewards credit card, or get a mortgage, but what exactly is a good credit score? Why is this three-digit number so important to your financial health?
Is it truly going to have an impact on your day-to-day life? And how much power do you have over it?
We’ll answer all of these questions in this detailed guide to credit score ranges. We’ll discuss what your credit score means, what constitutes a high credit score (and what constitutes a negative credit score), how your credit might benefit or hinder you, how to increase your credit score, and much more.
What Is a Credit Score and How Do I Get One?
A credit score is a single number that shows your creditworthiness to a potential lender. Your credit score will be low if you haven’t proven yourself trustworthy; on the other side, if you consistently demonstrate your trustworthiness (by paying bills on time, every time), your credit score will be high.
What factors go into determining a credit score?
In the United States, a small number of corporations known as “credit reporting agencies” collect information about your financial activities. They accomplish this by trading data with businesses that provide financial services such as loans, credit cards, and so on.
Three things are important to the agencies:
-You’ve borrowed money.
-You owe a certain amount of money.
-Whether you’ve been paying your bills on time or not
The agencies collect this information from everyone you owe money to and use it to build a picture of your creditworthiness. Experian, Equifax, and TransUnion are the three major credit bureaus in the United States.
Why? Consider it this way:
Let’s imagine three people approached you and requested a $5 loan. You’ve known two of them for years: one is completely trustworthy, and the other is the worst liar and scoundrel you’ve ever met.
You’ve never met the third person. Who do you think you’d be more willing to lend money to?
Obviously, I’d lend money to someone I trusted first, then someone I didn’t know, and finally a rascal.
Let’s pretend you’re a bank and three people walk in asking for a loan. You’ll need a way to tell who’s trustworthy (and whom you should lend money to), who’s unknown (and whom you should be wary about lending money to), and who’s a rogue (and whom you shouldn’t give money to at all). This is precisely what a credit score is for: It’s a number that indicates how financially trustworthy – or how much of a crook – you are.
What Credit Score Range Is Good?
Fair Isaac Corp. (FICO) and VantageScore are the two most regularly utilized credit ratings, each with a range of 300-850. If you’ve recently looked at one of your credit scores and aren’t sure if it’s good or bad, here’s a quick rundown of what consumer credit expert John Ulzheimer considers an excellent, good, fair, and terrible credit score:
300-650 if you have bad credit
“The dividing line between prime and subprime is commonly utilized as a score of 650,” Ulzheimer explains, referring to the threshold at which lenders consider you a significantly bigger risk.
If your credit score is below 650, you’ll have a difficult time applying for loans or credit cards, and if you do, you’ll likely have to pay significantly higher interest rates.
651-700 is ok credit
In 2017, the average American’s FICO score surpassed 700 for the first time, setting a new high.
“A 700 puts you in the 50th percentile nationally,” Ulzheimer explains According to Ulzheimer, if your credit falls within this area, you’re more likely to be approved for whatever you’re seeking for. “There’s no assurance you’ll obtain the greatest rate the lender has to give,” he says.
A credit score of 760 or more is considered excellent.
According to Ulzheimer, a credit score of 720 is enough to acquire the best reported auto loan rates, but the best mortgage rates are only available to persons with credit scores of 760 or higher. “I’d characterize a ‘excellent’ credit score as 760 or higher, which ensures the greatest possible offers across all financing situations,” Ulzheimer says. In fact, Ulzheimer claims that a flawless 850 credit score is no better than a 760 in terms of practicality.
We’ll get a little deeper into what your credit score means, why you have multiples, how they’re calculated (and by whom), and how to fix a terrible credit score in the sections below.
What Does Having a Good Credit Score Mean?
If you have a good credit score, your life will be a lot easier than if you have a low credit score.
Some of the reasons are likely familiar to you, but others may surprise you.
When your credit score is good:
It’s easier to secure a loan: Most individuals are aware that having terrible credit makes getting a mortgage, credit card, or installment loan difficult. Even if a creditor is willing to give you a chance, you’ll almost certainly pay a significantly higher interest rate than you would if you had an excellent credit score.
You may also be required to go through additional hoops, such as obtaining a cosigner or putting up collateral, if you have bad credit.
It may be simpler to find (and keep) work if:
Though a few states have forbidden or restricted the practice, potential employers are generally permitted to check your credit. They won’t see your score, but they will notice any serious concerns that are dragging it down, such as late payments or legal troubles. Those red marks may suggest a lack of accountability, which could lose you a job offer. Professionals with bad credit might potentially be denied licenses by regulatory organizations.
It’s possible that your insurance premiums will be lower:
If you have a decent credit score, you may be able to save money on vehicle and property insurance compared to someone who has low credit. That’s because insurers’ research suggests that if you have bad credit, you’re more likely to file a claim, making you a riskier customer. This practice is prohibited in a few states (California, Maryland, and Hawaii).
It can assist you in starting a small business in the following ways:
When you need to borrow money for a new business, your personal credit may be all you have.
A poor credit score can make this difficult, expensive, or both. Here’s how to get started building business credit.
It can assist you in obtaining an apartment:
Sure, good credit is required for obtaining a mortgage, but it can also assist you in obtaining a suitable apartment. On the other hand, if you have negative credit, potential landlords may refuse to rent to you — or charge you a higher rate — because they are concerned that you will not pay the rent on time.
It may be simpler to connect your utilities:
You won’t have any trouble having the power or cable company out to your house if you have good credit.
However, if you have a poor credit score, you may be required to pay a deposit or submit a letter of guarantee (which identifies someone who will pay your bill if you don’t) before your electricity, gas, water, phone, or internet is turned on.
As you can see, having high credit is about more than just borrowing money; it may assist you in a variety of ways, from making your apartment search easier to finding your dream job.
Basics of Credit Scores
Let’s get into the nitty-gritty of how credit ratings are calculated now that we know why it matters.
The information in your credit report is used to generate this three-digit number.
Your credit report includes information about how you’ve utilized credit throughout your life, such as whether you’ve paid bills on time, how much you owe now, and how long you’ve had each account.
Simply said, your credit score considers all of this data and assigns you a number that falls inside a specified range. A higher score indicates that you are a lower credit risk.
Various companies provide various credit scores.
There are a variety of credit rating models to choose from.
The following are the most common scores:
The FICO score is by far the most popular credit score. Your FICO score is a number that varies from 300 to 850. Equifax, Experian, and TransUnion, the three major credit reporting companies, provide information for FICO scores. There are many more FICO scores, which differ based on the credit bureau and the industry that uses them, but the main lesson is that FICO is the behemoth in this sector, and it’s what most people mean when they say “credit score” in general.
VantageScore: The three credit bureaus developed this methodology to compete with FICO scores.
VantageScore 3.0, the most recent edition, likewise has a range of 300 to 850; prior versions have somewhat different ranges. Lenders do utilize the VantageScore, although not as frequently as they used to.
Experian’s PLUS score is based solely on the information in your Experian credit report and is solely for educational reasons; lenders do not use it.
It has a range of 330 to 830.
TransUnion developed the TransRisk score, which is based on its own credit files.
It solely estimates risk for new accounts, rather than taking into account your whole account history. It has a range of 100 to 900.
Equifax score: Equifax’s version of your credit score, which goes from 280 to 850.
It is merely an educational tool, similar to the Experian PLUS score.
Don’t be intimidated by the variety of credit scores available. Simply be aware that lenders are far more likely to look at your FICO credit score than any other, and it’s up to you to double-check which score you’ll be receiving before paying for one. Later in this article, I’ll go through a few different areas where you may get your credit score and which one you’ll get.
How Your Credit Score Affects Credit Cards and Loans
As previously stated, having a decent credit score might make life easier for you.
Let’s take a closer look at how your credit score affects the kind of loans you can get and how much you’ll pay. I’ll focus on mortgages, vehicle loans, and credit cards, which are three of the most frequent types of credit accounts.
Credit cards are accepted.
With almost any credit score, you should be able to get a credit card.What will differ significantly is the type of credit card for which you will be eligible.
Excellent credit: If you have an excellent credit score, you’ll be able to get the lowest stated interest rate on most credit cards — this varies by card, but it may be as low as 10%.
More importantly, you’ll be able to qualify for the finest rewards credit cards, which allow you to earn cash back, airline miles, and hotel stays among other benefits.
Only people with great credit will be able to take advantage of the finest rewards deals.
Good credit: Even if your credit isn’t perfect, you can still get a variety of cards.
While you may not be eligible for some of the top rewards cards, you may still be eligible for 0% introductory APRs, which are great for balance transfers.
The interest rate on your loan may rise to the mid-teens in the future.
You might be able to qualify for many of the same cards that people with good credit can get.
The key difference is that you’ll almost certainly pay a significantly higher interest rate for the privilege, which is often near or above 20%.
You can still get a credit card if you have bad credit.
However, you might only be able to get a secured credit card with a security deposit.
If you don’t pay your payment, the credit-card company can take your deposit, which is frequently equal to or larger than the amount you can charge.
If you are approved for an unsecured card without a deposit, your credit limit will most likely be quite low.
There are still plenty of bad credit credit cards available to help you restore your credit score if you have bad credit.
What Influences My Credit Score?
Let’s take a closer look at the components that make up your credit score now that we know what they are and what produces a good and bad score. We’ll concentrate on what makes up your FICO credit score because of FICO’s dominance.
According to FICO, the following is how your credit score is calculated:
Payment history, 35%: Your payment history informs potential creditors about your ability to pay your debts on time. If applicable, foreclosures, collections, bankruptcies, and the like will affect your credit score. Your score will be based on how frequently you were late, how many times you were late, how much you owed, and how recently you missed payments.
30 percent of unpaid sums:
If you’ve used up all of your available credit, it may indicate to potential creditors that you’re overextending yourself. The amount you owe on all of your accounts compared to your overall credit limit, as well as the amount you owe on different types of accounts, such as credit cards vs. installment loans, are all factors that can affect your credit score in this area.
Credit history length (15%): A long credit history makes you less dangerous to potential creditors than someone who has just started their first credit account. Your credit score is determined by the age of your accounts as well as the length of time since you last utilized them.
Opening too many new credit accounts at once will lower your credit score by 10%.
When you’re looking for a credit account, too many credit inquiries can hurt you.
10 percent credit types: Potential creditors prefer to see a variety of credit accounts rather than just one.
They prefer to see both revolving credit lines, which allow you to borrow money again and again after repaying it (such as credit cards), and installment debt, which is a loan that is given to you in one big sum and repaid over a certain period of time in fixed instalments (such as a car loan or student loan).
How Can I Improve My Credit Score?
If you’re beginning from scratch with no or little credit history, there are several actions you may take to get your credit to shine as quickly as possible.
Maybe you’re just getting started and haven’t given credit much thought yet, but you know you want to be proactive and create the framework for a solid credit score.
Here are some guidelines for doing so responsibly.
First, learn how to manage ‘real money.’
You should be able to budget before opening any credit accounts. This involves using a checking account to pay routine bills without incurring overdraft penalties and beginning to create an emergency reserve in a savings account.
You can use a debit card linked to your checking account, which is as convenient as a credit card but without the monthly costs, or you can use a prepaid card. If you choose this way, be aware of fees, and read our guide to the best prepaid debit cards before deciding.
Begin with a credit card tailored for first-time buyers.
The Simple Dollar suggests a few different sorts of credit cards that can help you build credit without putting you in too much debt.
Student credit cards, which frequently have more lenient terms and fees than other credit cards, can teach financial responsibility. Your credit limit will most likely be limited, and you may require a parent to co-sign your application. If you’re looking for the best credit cards for students, go no further than our selections.
To start an account with a secured credit card, you must first deposit a certain amount of cash.
If you don’t pay your bill, the card issuer can utilize this deposit as collateral. A secured credit card will not come with the same benefits as other cards. You should also double-check that your card activity is reported to credit agencies, as this is the only method to develop your credit history. In our guide to the best credit cards for bad credit, we make a few recommendations for secured credit cards.
Retail credit cards may be appealing because of their low credit limits and ease of application, but they also come with high interest rates, making them better suited for when you’re more comfortable — and responsible — with credit cards.
Add a different type of credit to the mix.
Diversifying your credit after you’ve gotten used to your new credit card will help you increase your score.
You can take out a small personal loan from your bank or an internet lender and pay it back promptly, or you can take out an installment loan, such as a car loan or a school loan, if you absolutely need it and can afford to repay it.
Keep solid credit practices.
Budgeting, spending, and paying on time are the foundations of good credit habits.
The most important rule is to pay your bills on time. Making more than the minimal amount due is, on the other hand, a desirable habit to develop. This allows you to pay off your debts more quickly over time. Even paying a little more than necessary can save you a lot of money in interest.
It’s also crucial to comprehend your credit consumption. As you gain credit experience, your card issuer may increase your credit limit. However, just because you can now charge $5,000 doesn’t mean you should.
To maintain a healthy credit score, it’s a good idea to utilize less than 30% of your credit limit.
If your credit limit is $5,000, this implies keeping your monthly balance under $1,500.
How Do I Repair My Credit?
You may have a lengthier credit history, but it’s far from perfect.
The good news is that if you’re prepared to put in the effort, you can improve your credit score.
The bad news is that it is a lengthy procedure. However, given the numerous consequences your credit score has on your life, the time and work will be well worth it.
Understand your credit report.
Before you start working on improving your credit, FICO suggests double-checking what’s on your credit report.You’ll be able to notice any mistakes or instances of fraud that are artificially lowering your score and dispute them this way.
Old accounts should not be closed.
Keep in mind that the length of your credit history accounts for 15% of your credit score.
It may be tempting to close those old, unused accounts after you view your credit report, but this might actually decrease your credit score.
Having credit but not utilizing it, on the other hand, can be beneficial.
If necessary, cut the cards up so you don’t have to use them.
A credit card with a high annual charge may be an exception; if you no longer use it, you may want to cancel it to save the price.
Make a foolproof payment plan.
Make sure you pay your bills on time by setting up automated payments.
Pay more than the minimum required if you can to avoid paying as much in interest.
If you’re having difficulties making the minimum payments on all of your credit cards each month, it’s time to contact your creditor and arrange an alternate payment plan that you know you’ll be able to stick to.
Of course, creditors are not obligated to deal with you, but the majority of them are prepared to negotiate minimum payments, interest rates, and late fees.
Consolidating your previous debt into a single loan can also make it easier to keep track of your payments.
Consider using a balance transfer credit card to reduce your credit card debt interest payments and make simply one payment.
High-balanced balances should be chipped away at.
Remember that how much credit you use accounts for 30% of your credit score; if you charge too much, you appear to be at risk of overextending yourself. Aim for a balance of no more than 10% of your available credit, according to experts. Concentrate on paying off your credit card debt first, as this will benefit your credit score more than taking on an installment loan.
Look for fresh credit in a timely manner.
When you’re looking for a loan, potential creditors will review your credit history as part of the application process, which can lower your credit score. You can assist fight this by limiting your shopping to a specific time frame – most likely 30 days (though it could be as short as 14 or as long as 45, depending on whether your lender is using an older or newer FICO scoring formula). Then, even if numerous potential creditors pull your credit report in a two-week period, FICO will only consider one query instead of several.
How do I find out what my credit score is?
Let’s speak about how to check your credit score now that you know everything there is to know about it.
You can do this in a variety of venues, but some are better than others.
AnnualCreditReport.com provides a free copy of your credit report from each of the three main credit agencies once a year, as required by law.Unfortunately, this report does not include your credit score, but it does include all of the information that goes into determining your credit score, such as what credit accounts you have, how much you owe, if you’re paying on time, and so on.
The credit bureaus and FICO
You’ll acquire the most valuable, detailed information directly from FICO or one of the credit bureaus, but these services will cost you money.
Here are some alternatives for you:
MyFICO provides two types of services: one-time FICO scores and reports, and continuing credit monitoring. For $19.95, you can acquire a single credit score and report from one credit bureau, or for $59.85, you can get scores and reports from all three bureaus.
Ongoing credit monitoring costs between $14.95 and $29.95 each month.
You receive triple-bureau surveillance and identity-theft protection for a higher charge.
For $19.95, you may obtain your Experian credit report and FICO score, or for $39.95, you can get your Experian credit report and FICO scores from all three bureaus.
For a month, you may check your Experian credit report and FICO score for $4.95, then $19.95 each month after that.
After a $1 one-week trial, ongoing credit monitoring with Transunion will provide you access to your Transunion credit report and FICO score for $17.95 per month.
Several identity theft monitoring features are included in the service.
Unfortunately, there is no easy way to acquire a one-time credit score and report without having to join up for this service online.
Equifax charges $19.95 for your FICO score and credit report.
Be wary, because it also sells a credit report for $15.95 that includes the less-useful Equifax score, or $39.95 for reports from all three bureaus.
For $14.95 per month, you can get ongoing credit monitoring that includes your FICO score.
Services for credit monitoring
Identity Guard and LifeLock, for example, are credit-monitoring services that provide more extensive identity-theft protection than most of the services supplied by credit bureaus.
The monthly cost normally ranges from $8.99 to $26.99.
Most of them also have single- or triple-bureau monitoring options.
It’s worth noting, though, that the credit ratings accessed by these businesses aren’t always FICO scores.
Check out our guide to the top credit monitoring services for more information and suggestions on credit monitoring services.
Sites that provide free credit reports
What’s the catch? It’s difficult to beat free, so what’s the catch?
Some shady websites aren’t really free at all — they come with a slew of conditions.
Frequently, you’ll join up for a free trial period, only to be hit with a monthly payment once the trial time expires.
Fortunately, there are respectable websites that provide free access to your credit score.
See our guide to the best free credit report sites for more information.
Also keep in mind that you will not see your actual FICO score, which is what most lenders see and use, and that you will most likely only see a score based on information from one of the three credit bureaus, not all three.
TransUnion is a partner of Credit Sesame.
It offers a wider range of credit tools and instructional resources than its competitors, as well as less advertisements. Your VantageScore will be calculated using TransUnion data.
Credit Transunion has recently collaborated with Sesame.
Their free service does give identity theft protection, but expensive items are also heavily promoted.
Equifax has teamed with Quizzle. Every six months, it delivers a complete credit report. Based on Equifax data, you’ll see your VantageScore.
Banks and credit card companies
Customers’ credit ratings are now being provided on monthly statements or online by a handful of banks and credit card issuers. Some cardholders will have access to their FICO scores, including Chase Slate, Barclays, and Discover it members. Others will be saddled with non-FICO credit scores, which are less useful. Keep in mind that you won’t have access to your actual credit report in most circumstances.