A good credit score is one that helps demonstrate to creditors that you’re likely to make payments on your debt as agreed. But what’s the magic number your score must rise above to be considered good, and how do you get there? Find out more in the quick guide to good credit scores below.
Understanding Credit Score Ranges
Credit scores are generated by credit scoring models. Those models take into account the information on your credit report at one of the three major credit bureaus. Using complex mathematical algorithms, the scoring model comes up with a three-digit number that works as a sort of beacon, telling lenders and others how your creditworthiness might stack up.
The scale is from 300 to 850, with higher being better. That’s a simple enough concept: The higher your score, the better your credit. But it gets more complex from there.
Two Credit Scoring Models
There are two major credit scoring models: VantageScore and FICO®. The score you need to have “good” credit is slightly different for each.
- 300-499: Very poor
- 500-600: Poor
- 601-660: Fair
- 661-780: Good
- 781-850: Excellent
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Exceptional
What Impacts a Credit Score?
Now that you know where you have to fall on the scales to have good or better credit, you might wonder what impacts your score. According to Experian, which is one of the three major credit bureaus, five factors account for most of your score regardless of the scoring model.
Ultimately, each of these factors helps tell a story about your risk as a borrower. The credit scoring models put all that information together and give it an overall score.
1. Payment History
Payment history refers to how well you’ve paid your debts in the past. This is one of the most important, if not most important factor. That’s because the assumption is that if you miss payments or default on debt, you’re more likely to do so again in the near future.
The majority of lenders — including banks, loan companies and credit card companies — report to at least one of the three major credit bureaus. That means they tell the credit bureaus whether or not you made monthly or other payments as you agreed. If you’re late with payments, they may provide information about how late and how often.
Any type of late payment can be a negative hit to your credit score. Later payments, such as 90 days late, can be a bigger hit. And if you never catch up and end up defaulting on a loan or other debt obligation, the score drop can be even bigger.
2. The Amounts You Owe
The more you owe to other people, the riskier a borrower you might be. For example, if you’re fully leveraged paying back loans and credit cards you already have, are you going to be able to pay back a new loan too?
While your total amount of debts overall is a factor, your credit utilization is even more important. Credit utilization is the amount of revolving credit limit you’ve used.
For example, if you have three credit cards with a total credit limit of $10,000 and you have a total balance of $6,000, your credit utilization rate is 60%. That’s considered fairly high. Experian notes that it’s a good idea to keep your credit utilization at 30% or less of your limits.
3. How Long You’ve Had Credit
The overall age of your credit counts for something, which makes sense. If you’ve managed credit positively for a while, that means you have experience handling finances and paying debts on time.
How long you’ve had credit period plays a role here. If you just got your first credit card or loan three months ago, for example, you don’t have enough credit history for scoring. If you’ve had credit consistently for years, you have a lengthy history to base a score on.
The average age of your open accounts also matters. If you are constantly opening and closing accounts so that your open accounts are only ever a few months old, that’s not ideal for your credit. You want at least a few accounts that you’ve had for a while so you can demonstrate positive management of debt over time.
4. The Variety of Credit Types on Your Reports
A good mix of credit plays a role in your score. Ultimately, lenders want to see that you can manage varying debt types, so it’s a good idea to have both revolving and installment accounts on your credit history. By varying the types of credit you have access to, you can improve your score.
5. New Credit and Credit Inquiries
With credit utilization rate being a key factor, you might think that applying for new credit accounts is an easy way to raise your score. This isn’t straightforwardly true, though. While more total access to credit is better for your score in the long run, it’s all but guaranteed to take a dip in the short-term when you apply for new accounts.
Hard inquiries, which are inquiries on your credit report related to a lender evaluating you for a loan or other credit product, can bring your score down a bit. Get a bunch of them in a short period of time, and the hit could be enough to drag you out of the good credit score range. And hard inquiries that result in a denial are even worse — not only does your score take the short-term hit from the hard inquiry, but you’ll end up with no new credit to show for it.
Tips for Getting a Good Credit Score
- Make all your payments on time. Payment history is a huge factor, and if you miss payments or default on debt, you’ll have a hard time rising to a good credit score no matter what you do.
- Manage credit cards wisely. Avoid running up credit card balances if possible. Owing more than 30% of your credit limit on your cards may cause a negative hit to your score.
- Check your credit reports and look for errors. Something as simple as a typo can potentially lead to a lower-than-necessary credit score. Get your free credit score at annualcreditreport.com. If you find any information you think is an error, dispute it.
- Look for credit-building products. Secured credit cards or one option. Loans that are possible to get approved for with bad or lackluster credit are another option. Just make sure you pay your debts on time and that you work with companies that report to all three credit bureaus so you get the positive benefit of your hard work.
Wise Loan reports to two of the three credit bureaus, and you don’t need good credit to get approved for one of our loans. Apply today to get started.
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.