Credit scores are undoubtedly important – they determine our eligibility for various financial products, including credit cards. Credit scores also determine the interest rate you are charged for using credit lines on cards and loans.
What is a good credit score? According to FICO, the average credit score is 716. But if your credit score is above average, you can take advantage of lower interest rates and higher card credit lines. Here’s what you need to know about good credit scores and how they’re calculated.
What is a good credit score for a credit card?
Scores in the 670 to 739 range are good, and they can be good enough for most people. If you get more than 740 points, you will get the highest scores. And although more than 800 is an exceptional result, you will not get more from it.
Any score below 579 is not what you want. A score between 580 and 669 is considered a fair score, but you will get higher scores with a higher score.
Credit card issuers define “good credit” differently, so sometimes you can’t know until you apply if you’ll be approved for a loan product or get a better rate. However, you can get a good general idea of your credit history from your credit score. The two biggest creators of credit scores are FICO and VantageScore. Here’s how they break it down:
| Credit rating ranges | |||
|---|---|---|---|
| FICO | VantageScore | ||
| Credit rating | Score range | Credit rating | Score range |
| Exceptional | 800–850 | Perfect | 781–850 |
| Excellent | 740–799 | Good | 661–780 |
| Good | 670–739 | Fair | 601–660 |
| Fair | 580–669 | Poor | 500–600 |
| very poor | 300–579 | very poor | 300–499 |
Why Good Credit Scores Matter
While credit scores help determine the availability of credit and the rate you’ll pay to access it, what it actually measures is your statistically proven likelihood of defaulting on the money you borrow. The greater the risk, the lower your score and the more you will pay to access credit – if you can access it at all.
FICO vs VantageScore
FICO and VantageScore are very similar consumer credit scoring models, both using a scale of 300 to 850 when calculating credit risk. As shown above, what FICO and VantageScore consider “fair” or “good” creditworthiness differ slightly: FICO uses a score of 670–739 to describe good creditworthiness, while VantageScore uses 661–780 for the same category.
However, FICO and VantageScore measure consumer creditworthiness quite differently. FICO lays out percentages of 100 percent of the various factors considered in calculating a credit score, and VantageScore uses “reason codes” to create a hierarchy of factor importance.
FICO calculates credit scores by weighing the following factors:
- 30 percent is the amount owed
- 10 percent new credit
- 15 percent – length of credit history
- 10 percent mixed loan
- 35 percent – payment history
Meanwhile, VantageScore ranks the importance of factors in the following order:
- Extremely Important: Credit Utilization, Balance and Available Credit
- Big impact: credit structure and experience
- Moderately Influential: Payment History
- Less Influential: Credit Age and New Accounts
Credit rating factors
Here are the factors that affect your credit score:
payment history
Payment history makes up 35 percent of your total FICO score and is considered “moderately impacting” your VantageScore. To earn the best score, your goal should be to never miss a due date on any of your bills, be it a loan, mortgage, or credit card. If a bill is due and you find that you can’t pay it, it’s always best to call the company and work out a mutually beneficial payment plan to avoid outright delinquency.
Credit use
Next comes your credit usage, or how much of your available credit you are using. This makes up to 30 percent of your FICO score and has an enormous impact on your VantageScore. Here’s how it works: If you have a $5,000 credit limit and charge $1,000, the credit usage is 20 percent. As soon as you pay your statement, your credit usage drops. The people with the best results are in single-digit percentage points in this category. For most of us, anything in the 20 to 25 percent range will keep your score in good shape.
Length of credit history
The other three parts are not as heavily weighted, but still important. At 15 percent for FICO and considered “less influential” by VantageScore, credit history should not be confused with your payment history. It measures the length of your oldest line of credit and the average age of your accounts, so try to keep your oldest accounts open whenever possible.
New credit and combination of credit
New credit scores are in the 10 percent with FICO and are “less impactful” for VantageScore. Just as when closing old accounts, you must be careful when opening new ones. Opening new accounts creates uncertainty and can signal increased risk to lenders, which will lower your rating, at least in the short term.
When it comes to the set of loans that VantageScore refers to as credit experience, this is where VantageScore and FICO differ. FICO considers your credit balance as only 10 percent of your credit score, while VantageScore ranks it as “very influential”. This area takes into account the variety of credit available to you, including credit cards, mortgages, student loans, and auto loans.
How to build a good credit history
According to Experian, approximately 62 million Americans do not have credit data to assess or are considered “thin files” (credit files with too little data to assess). When you’re just starting your credit score journey, it can be difficult to access financial products to build credit if you don’t even have an established credit history.
Here are some easy ways to restore your credit history:
- Get a secure credit card. With a secured credit card, you make a deposit and the issuer provides you with a line of credit based on your deposit. You then use the credit card as you normally would, making payments and making purchases on a rotating basis while the issuer reports to all three credit bureaus – Equifax, Experian and TransUnion.
- Use non-bureau reporting information such as utility bills, rent, or bank account history with a program such as Experian Boost or UltraFICO to complete the data in your file.
- Become an Authorized Trusted Credit Card User. If you have a strong personal relationship with someone, such as a family member, ask them if they can add you as an authorized user to their account. You don’t even need to use a card. As long as the main account holder uses the card and pays it on time, you create a credit history.
Frequently Asked Questions About Credit Score
How long does it take to get a credit rating?
It may take three to six months after opening an account to establish your first credit score.
How to find out your credit score?
The easiest way is to go to AnnualCreditReport.com and request a copy of your credit report from the three main bureaus: Experian, Equifax and TransUnion. Some credit card issuers, such as Discover, even offer cardholders free FICO score monitoring.
What does not count towards credit scores?
According to VantageScore, among the factors not taken into account when calculating your credit score are: race, ethnicity, age, profession, work experience, religion, nationality, gender, place of residence, salary, total assets and marital status.
What are the 5 levels of credit scores?
FICO calculates credit scores and categorizes scores into five levels:
- Exceptional: 800 to 850
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
bottom line
It takes effort to maintain a good credit score. As long as you pay your bills on time and even connect non-traditional bills like utilities and rent to your credit report, you can increase your credit to a good level. If you do this for a long enough period of time, your FICO score may even rise to “very good” or “exceptional”.
With a good credit score, you have access to new loans and accounts such as mortgages, auto loans, and the best credit cards, accompanied by the best annual interest rates and terms available.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
