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You have seen the commercials and heard the radio jingles, so by now, you know that a good credit score is important. But what is a good credit score? Generally, anything around 700 or above is considered a good FICO credit score.

But that is not the end of the story. The reality is that a good credit score doesn’t guarantee a loan or mean that you are in good financial shape.

A good credit score just gives the lender another piece of information to help determine your credit worthiness. Your ability to get a loan depends on many factors, including your credit report, your credit history, amount of available credit, credit utilization, and other factors.

Many lenders even use specific types of credit scores for certain loans. For example, the FICO 8 score is often used by mortgage companies to determine one’s ability to qualify for a mortgage.

Expert Tip: Get a free copy of your credit score.

Two Credit Scoring Models: FICO® and VantageScore

Most of us think of FICO® when we think of credit scores. Fair Isaac Company pioneered credit scoring as we know it today, coming up with a complex formula to predict borrower behavior based on past credit users’ behavior.

Fair Isaac Company uses information in your credit report to createcome up with the FICO® score. But FICO® is more than just one score.

Indeed, Fair Isaac has several different scores that it markets to financial services providers to use when evaluating you. A depositor score rates your banking behaviors and a mortgage score that lenders can use to determine your default risk.

VantageScore is another credit score model created by the three major credit agencies. Unlike the FICO® score, which ranges from 300 – 850, the VantageScore ranges from 501-990.

Additionally, the VantageScore also includes a letter rating of A to F. According to the VantageScore website, this credit scoring model is slightly more friendly toward those who use credit irregularly.

The credit agencies claim that the VantageScore, which also gets the data for its scores from credit reports, can help provide an accurate look at those who may be penalized by the FICO score for not using credit as frequently.

What is a Good Fico® Credit Score Range?

What is a good credit score

FICO® is the acronym for Fair Isaac Corporation and the name for the credit scoring model that Fair Isaac Corporation developed.

This proprietary mathematical formula determines your credit score. There are many different versions of credit scores, but the most commonly referenced is the FICO® credit score, considered the industry standard.

Your credit score is based on a weighted formula that includes your payment history, amounts owed, age of credit history, recent loans, and the types of credit you have. The FICO® credit scores range from 300 to 850, and a good credit score range is considered 700 – 850.

Here are more credit score ranges and their ratings.

FICO® scores predict the likelihood that someone will fall 90 days behind on a bill within the next 24 months. FICO® does this using complex algorithms based on information in your credit report from each national credit bureaus: Experian, TransUnion, and Equifax.

Credit scoring models rank consumer credit behavior, so someone with a higher score is considered less likely to miss a payment than someone with a lower score. That means a higher score can help you secure better terms when you’re applying for credit.

FICO® periodically releases new versions of its scores, and creates different versions of its scores to work with each bureau’s databases, which is why there are many FICO® scores.

Score numbers will vary a bit, but generally accepted ranges are:

Good credit score: above 700
Average credit score: 680 – 700 (depending on the source)
Poor credit score: Below 620

What Is a Good VantageScore?

VantageScore is one of many scoring models that look at the information in your credit reports and generate a number designed to communicate the likelihood you’ll pay your bills on time. You may have seen your VantageScore delivered through educational websites or your credit card statement.

It is similar and accepted as an industry standard in many cases.

Since its creation, there have been four VantageScore credit score models, VantageScore versions 1.0 and 2.0 used a scale from 501 to 900, corresponding with letter grades from A to F.

The VantageScore 3.0 model introduced in 2013 adopted the 300 to 850 range. VantageScore 4.0 was released in April 2017 and uses a range of 300 to 850.

A score from 750 to 850 is considered excellent or super prime, while scores between 700 to 749 are considered good. Scores between 650 and 699 are considered fair.

Scores in the 550 to 649 range are poor, and 300-549 are very poor scores.

According the Experian, more than 60% of Americans have a VantageScore of Fair or better.

Why You Need a Good Credit Score

A good or bad credit score doesn’t guarantee a loan or necessarily prevent you from getting a loan. A good credit score will make it easier to be approved for a loan, allow you to have more available credit, and qualify you for lower interest rates when you are approved for a loan.

And low-interest rates can make a HUGE difference over the life of a loan.

How a good or bad credit score affects interest rates. Loans are available to almost anyone, even people with a poor credit score.

But the terms and size of the loan will vary widely. The difference will come from the required down payment or the interest rate you will have to pay.

Let’s look at some examples of how good and poor credit scores will affect your payment structure on a mortgage, then on an auto loan.

There is a substantial difference in monthly payments between high and poor credit scores, and the payments over the life of the loan should be enough to convince you that a good credit score is valuable!

What is a Good Credit Score by Age?

According to American Express, Americans’ average FICO® credit score rose to 711 as of July 2020.

By most lending standards, 711 is considered a “good” credit score. And anyone at any age, location, or income level can build a good – or even excellent – credit score.

Yet not all age groups, states, or income levels tend to have the same average scores.

FICO® pays attention to age when calculating your credit score, but not the way you might expect. The average length of your credit history matters, not how old you are in years.

By itself, your age is generally not a great indicator of credit score. It’s entirely possible for a young person to have a high score and an older person to have a low score.

What Affects Your Credit Scores?

There are five variables used to calculate a FICO score. Each one is weighted differently, producing an overall score when combined. Those variables are:

Payment History – 35%
Older accounts have made more payments, increasing a person’s scores if those payments were consistently on time, or decreasing them if too many were made late.

Credit Utilization Ratio – 30%
As our incomes grow, it can affect how high a credit limit we receive. The lower your credit utilization ratio, the greater the chance it will positively affect your credit score. For example, if you have $10,000 in total credit and you’re using $5,000 of it, your utilization ratio is 50%.

Length of Credit History – 15%
Account age increases over time. That’s part of the reason why you should keep your oldest accounts open. It works in your favor.

Credit Mix – 10%
Credit agencies like to see that you can responsibly handle various types of debt. When you’re young, you might only have a credit card account, while a 40-year-old might have a car loan, mortgage, personal loan, and several credit cards.

Recent Inquiries and Newly Opened Accounts – 10%
When you open a new account, you’ll see a ding in your credit score. This is because the lender makes a “hard inquiry” into your account. A hard inquiry will stop affecting your credit score in a year.

Effect of Credit Score on 30 Year Fixed Mortgage Rates

The score ranges and interest rates below come directly from the MyFICO website. There are three examples given for credit score ranges and interest rates, one is for auto loans, and the other compares credit score and interest rate ranges for 15 and 30-year mortgages.

The example below is from the 30 year fixed mortgage at $300,000:

FICO® score	APR	Monthly Mortgage Payment
760-850	4.645%	$1,546
700-759	4.867%	$1,586
680-699	5.044%	$1,619
660-679	5.258%	$1,658
640-659	5.688%	$1,739
620-639	6.234%	$1,844

Comparing good credit mortgage rates and bad credit mortgage rates. Using the numbers above, you will notice there isn’t a big difference in the monthly payment from the top credit score to the second tier credit score range of 700-759 (anything over 700 is generally considered a good credit score range).

Once you drop into the lower tier credit score ranges, you will see a large monthly difference in your payments. But thinking in terms of monthly payments can be an expensive way to think, especially when you consider that this is for a 30-year mortgage.

Even with the best credit score, making minimum payments on a 30-year mortgage means paying $256,564.15 in interest over the life of the loan. Paying 6.234% interest over the life of a 30-year mortgage equates to paying $363,851.12 in total interest.

To put it another way, that monthly difference of $298 equals a difference of over $107,000 over the life of the loan.

How Your Credit Score Affects Auto Loans

Using the same concept as we used above, let’s examine the how your credit score range affects your monthly auto payments. The MyFICO website references a 36 month fixed rate auto loan for $25,000.

FICO® score	APR	Monthly Auto Payment
760-850	5.715%	$757
700-759	7.354%	$776
680-699	9.380%	$799
660-679	13.196%	$845
640-659	18.039%	$904
620-639	18.680%	$912

Comparing good credit auto loan rates and bad credit auto loan rates. As you can see, the monthly difference between the good and poor credit score ranges is $155, or over $5,500 for the life of the loan.

How Your Credit Score Can Impact Other Areas of Your Life

Some other companies or industries may also check your credit history or credit score. Here are some ways they may use your score:

Employers: Whether it’s right or wrong, employers believe that financial health is a good determinant of whether a potential employee will steal. Reviewing a credit history has become standard in background investigations, especially if they are security related, because bribes may tempt someone in difficult financial shape.

While bankruptcy can’t be a factor in a hiring decision, everything else is fair game.

Insurance companies: It’s unclear why insurance companies use credit in their decisions, but the fact they do is obvious.

The lower your credit score, the higher your premiums will be. For whatever reason, their actuaries have determined that lower scores mean more claims.

Landlords: Landlords check credit scores and histories because they’re essentially “lending” you the rent value each month. If you’re unable to meet other obligations regularly, you might not be able to make rent, and that’s a problem.

This same logic applies to service contracts, like cable or cell phone service.

What is a Bad Credit Score?

Have a poor credit score? Credit scores under 620 are often considered sub-prime loans and come with more risk to the lender. Borrowers with credit scores in this range often pay substantially higher interest rates.

If you fall below the sub-prime loan cutoff limit, it may be best to try and improve your credit score before applying for a loan. You may find it easier to obtain a loan, and the terms will likely be better.

Remember, not all is lost. As mentioned above, you can almost always find someone to give you a loan if you need one.

You will see a difference in terms of the loan, though. You may be required to pay a larger down payment or higher interest rates to get the loan you seek.

Why None of Your Credit Scores are the Same

Many people are surprised when they look at their credit scores and see that they don’t match up. A credit score may differ across different credit bureaus, and those scores are often slightly different than what you see when you get your free FICO credit score.

Sometimes the difference is more than a “little.” In some cases, your might find that your credit scores vary by up to 20 points — or more.

Why is this? The answer is that credit scoring models differ across agencies and financial institutions.

Tweaking Credit Scores

One of the reasons that each agency comes up with a different score for you is that not all agencies have the same information reported to them. But, on top of that, each agency also tweaks the FICO score (except Experian, which does not use the FICO score).

But credit agencies aren’t alone in tweaking the formula. Many lenders and insurers emphasize certain factors more or less in their scoring models, as well as considering other information.

The result of this is that your credit score can vary widely, depending on what information the institution figuring your score has and what information is emphasized more in their only variations of credit scoring formulas.

More Consumer Information Being Used to Build a Profile

Anymore, lenders and other financial services providers rely on more than a simple score model. Credit score systems are becoming increasingly complex, and some creditors are also striking out on their own to do additional research.

The Fed has decided that lenders can use “income estimates” from credit bureaus to verify your income. Some lenders check what you say about money on your social media profile. On top of that, creditors can pinpoint exact purchases made with debit and credit cards.

All of this information can be used to construct consumer profiles that financial services providers can use. It is even possible that ever-evolving credit scoring models will begin to take some of this data into consideration.

How to Improve Your Credit Scores

Your credit score plays an essential role in your ability to obtain a loan, the amount of available credit you can carry, and the interest rates you pay. It’s never too soon or too late to work on improving your credit scores.

Here are some things you can do to make that happen:

Review Your Credit Reports. You need to know what might be working for or against you, and the best way to do that is to check your credit history.

Pull a copy of your credit report from Equifax, Experian, and TransUnion and familiarize yourself with what’s in each.

Get a Handle on Bill Payments. Avoid late payments at all costs. You will pay a horrible price for late or non-payment of your existing obligations.

Aim for 30% Credit Utilization or Less. Pay your credit card balances in full each month if you can. If not, aim for a total outstanding balance at 30% or less of your total credit limit.

Then start reducing that down to 10% or less, which is considered ideal for improving your credit score.

Limit Your Requests for New Credit and Hard Inquiries. Hard inquiries include applications for a new credit card, mortgage, auto loan, or other form of new credit. The occasional hard inquiry is unlikely to have much of an effect.

But several in a short period can damage your credit score.

Make the Most of a Thin Credit File. Having a thin credit file means that you don’t have enough credit history on your report to generate a credit score. However, there are ways to fatten up a thin credit file and earn a good credit score using Experian Boost or UltraFICO.

Keep Old Accounts Open and Deal with Delinquencies. The older your average credit age, the more favorably you appear to lenders.

Consider Consolidating Your Debts. If you have several outstanding debts, it could be advantageous to take out a debt consolidation loan from a bank or credit union and pay off all of them.

Use Credit Monitoring to Track Your Progress. These services monitor changes in your credit report, including paid-off accounts or a new account you’ve opened.

Get your credit report and free credit score. If you are interested in monitoring or improving your credit you can get instant access to your 3 credit scores with GoFreeCredit.com.

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