“What’s a good credit score” is a question most people have asked at least once in their life. Credit scores are issued as three-digit numbers, typically between 300 and 850. These scores are separated into five categories, very poor, fair, good, very good, and exceptional. The higher the score, the more creditworthy you are deemed to be. That means your loan amounts can be bigger and your interest rates can be lower when applying for credit.
If you have a low score, not only will your loan amounts be smaller with higher interest rates, but even your renting and employment opportunities can be affected. These are all really important reasons why you need to know your score and what you can do to raise it (if necessary).
Here is a deeper, more detailed look at each of the possible credit score categories and what they can mean for you and your financial future.
What’s a Very Poor Credit Score?
A surprisingly high number of people (17%) have what is considered a Very Poor credit score of 300-579. With this score, credit applicants may be required to pay a hefty fee or deposit, if they are approved at all…and there is a good chance they won’t be approved by any major bank or lending agency. This is because lenders have assessed the risk and determined a high chance that the debt will not be able to be repaid as agreed.
Fortunately, there are plenty of unconventional loan agencies who work with “very poor credit” applicants to help them find a solution to their credit and loan needs. Look into companies such as Lift Credit Services who offer simple loans with easy payment schedules and a declining rate schedule.
As for mortgage applicants, being approved for a loan is still possible. However, a 10% down payment on an FHA mortgage is required.
What’s a Fair Credit Score?
As for people with Fair credit (20%), their credit score ranges from 580-669. Applicants with scores in this range are considered “subprime” borrowers with a higher-than-normal credit risk.
What’s a Good Credit Score?
The majority of people (22%) have a Good credit score of 670-739. According to FICO, only 8% of borrowers in this category are likely to become seriously delinquent on their future loans.
What’s a Very Good Credit Score?
People who are categorized as having Very Good credit (18%) maintain a 740-799 credit score. These borrowers are likely to receive better-than-average interest rates from lenders.
What’s an Exceptional Credit Score?
At the top of the range, those (20%) who hold an exceptional credit score of 800-850 will get the best rates from lenders. This can ultimately mean a savings of literally thousands of dollars.
Multiple Sources, Multiple Scores
The U.S. has three major credit reporting bureaus (Equifax, Experian, and TransUnion) that dominate the market for collecting, analyzing, and disbursing consumer information in the credit markets. Originally serving regional markets (west, midwest, south, and east), these three companies now report across all regions of the United States and even globally.
There are dozens of smaller credit reporting agencies that serve special interest markets but when it comes to the general public, these three are the only ones with national significance.
Each major credit reporting bureaus have their own determinants and calculations when assigning you a credit score. Because of this, your credit score can vary depending on which service you inquire through, even though they collect the same type of information about consumers.
This collected information includes:
- Name and Address
- Date of Birth
- Social Security Number
- Credit History (debts, payment history, credit applications)
- Loan History (student loans, housing)
Factors that affect your credit score for the worse include:
- Number and severity of late payments
- High debt-to-income ratio (all your monthly debt payments divided by your gross monthly income)
- Low credit utilization rate (your credit card balance divided by your credit limit, for each card as well as all together)
- Number of “hard” inquiries into your credit report (a potential lender reviewing your credit because you’ve applied to receive credit from them)
- Many new, recently opened credit card accounts
- Public records (bankruptcy, civil judgements, tax liens)
Each credit reporting bureau uses all of this personal information to calculate your credit score. It is often called your FICO Score which is named for the data-analytic firm associated with the original calculation method, but now that slightly different calculation methods are used, other names your credit score can go by are Equifax Credit Score, VantageScore, and TransRisk.
Because of the slightly different calculation methods used between the three bureaus along with various gaps in information gathering and reporting, you will not always have the same score across all three bureaus.
Unfortunately, this means it is necessary for consumers to check their score with each bureau in order to check for discrepancies. Since different lenders will request your credit score from different credit reporting bureaus, it’s possible to be denied for a lower score on one report even though your score is higher on another.
What If I Don’t Have a Credit Score or Need to Raise It?
If you are lacking any credit score whatsoever, that usually just means you don’t have any history of credit. Having a credit score is essential if any time in the future you are wanting to rent an apartment, get approved for a major credit card, take out a loan on a car, or qualify for a mortgage. Also, it is possible you will not be able to get utilities (including a phone), insurance, or even a job without some sort of credit history.
To build your credit up carefully, there are a variety of options to carefully consider. One example includes asking a parent or someone you trust to add you as an authorized user on one of their credit cards. That way, any activity on that card will appear on your credit report.
Other things you can do are to open a secure credit card (requires a cash deposit that serves as collateral), a student credit card (usually has a low limit), or a retail store credit card (typically doesn’t require a past credit history).
With any of these examples, payments must be made on time every month in order to build a positive credit history. Little by little, your credit score will rise higher and higher and you will be able to qualify for bigger loans over time.
To wrap up the question of what’s a good credit score, anything over 670 qualifies to be in that category. Just remember, if you’re not quite there, you still have options!
Read our blog post about improving credit scores!