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What credit score is considered Good?
670-739 (FICO)
How’s that for a simple answer? Nice and quick, right?
But what does “good” truly mean? Why is your credit score so important? What do you need to know to get it to Good? Or more importantly, how do you make it Excellent?
And what the heck is a FICO?
All these questions – and more – will be answered, my friend. Read on.
A credit score is a number between 300 and 850 that rates a person’s creditworthiness. It is a reflection of a person’s risk to a lender.
A credit score is not the same as a credit report, but information from a person’s credit report is what is used to produce a credit score. There are three major credit bureaus in the United States – Experian, Equifax, and TransUnion – that collect and analyze a person’s financial data, and create credit reports that are used primarily by lenders to make decisions about loans, credit cards, etc.
Credit scoring systems use the data in a credit report to come up with a credit score. The Fair Isaac Corp. (FICO) uses a model they built to create the FICO Score. This score is by far the most widely used by lenders and other institutions.
The VantageScore is the second most commonly used credit score. I have included it in this article because it is growing in popularity, but when I refer to scores, I will be referring primarily to FICO scores.
Credit scores are used to assist a lender in their decision to offer credit or a loan to a consumer. They are important because they give a lender a quick look into your financial life via a simple number. Lenders also look at other factors in your credit report, but the credit score is one of, if not the most, important.
Lenders don’t like risk. They want to make sure that when they loan someone money, they are going to get it back and then some. Credit scores show how risky a person is to lend to. If you apply for a credit card, and you are declined, that means the credit card company thinks you probably won’t pay them back after you run up a ton of charges.
Credit scores are also used to determine how much the lender will charge the consumer if they are accepted. The higher the risk, the higher the interest rate. Lenders hedge their bets this way. If you are considered a little more risky – have a somewhat low credit score, for example – the lender will charge you more for the privilege of borrowing money from them.
This is a big deal, as just a few percentage points make a huge difference over time. We’re talking thousands upon thousands of dollars, depending on the type of loan.
Check out our Mortgage Calculator and play with the interest rate. You’ll see just how huge even one percentage point can make.
Credit scores may be used for other things, not just for loans and credit cards. For example, some prospective employers will check your credit score to see if you are reliable and/or responsible. Ten to one your credit gets checked when you are applying to rent an apartment or a home. If your credit score is low, some utilities, like your phone service provider, might make you provide a deposit.
What credit score is Good? This is a great question that has 69 answers. What I mean is there is not a single number that is considered good. There is a range of numbers – 670-739 to be exact (FICO) – that are “Good”.
Credit scores are broken up in ranges to give lenders, and yourself, an easy and quick way to get a snapshot of your credibility and responsibility.
They also can be used as motivators to improve your score. Getting your credit score from Good to Very Good feels great, and opens a lot of doors. Now getting your Very Good score to Excellent feels fantastic, and is worth striving for.
As said before, Excellent credit gives you the best offers and the best rates. It almost guarantees you will be approved for a loan. Excellent means you can be trusted and it is assumed you are financially responsible.
Below you can find the credit ranges for the most used credit scoring agencies, FICO and VantageScore:
Excellent: 800 – 850
Very Good: 740 – 799
Good: 670 – 739
Fair: 580 – 669
Poor: 300 – 579
Excellent: 781 – 850
Good: 661 – 780
Fair: 601 – 660
Poor: 500 – 600
Very Poor: 300 – 499
Remember, credit scores are not credit reports. However, credit scores are derived from the information on a credit report.
The factors used to derive credit scores are very similar amongst credit score providers. The weights might be a bit different, but the factors themselves are similar:
The first thing you need to know about improving your credit score is that it takes time and patience. Yes, you can bump up your score by a few points pretty quickly, but large changes in the positive take some patience.
Sadly, your credit score can drop by a lot at the drop of a hat, then you have to climb slowly back up the ladder. Don’t let it drop.
Here are things that you need to do if you want to improve your credit score. And you need to keep doing them throughout your life. An Excellent credit score is obtainable. And oh, an added perk of following the steps below is that you save a ton of money!
(The following is based on the FICO model, and I’ve kept the weight percentages.)
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