Credit Score Basics: What is a Good Score?

If you've ever even considered applying for a credit card or a car loan, you'll know that the phrase "credit score" gets tossed around a lot. It's something a potential lender wants to know about you, whether they're a bank, a credit union, or a credit card issuer.

But what is a good credit score, and how does it affect you? A FICO score of 670 or higher is considered a good credit score. Keep reading to learn more about credit scores, why your credit matters, and what you can do to monitor and improve your credit score.

Credit score basics: What is a credit score?

The short answer: a credit score is a three-digit number that tells lenders how much risk you pose as a borrower when you apply for a new line of credit. Sometimes you'll also hear it referred to as a measure of your creditworthiness. If you have a low credit score, lenders consider you more of a credit risk. If you have a higher score, lenders consider you to be more trustworthy when it comes to the likelihood that you'll pay back the money you borrow.

It sounds simple enough, but there are some credit score basics that are important to understand. For instance, you can have more than one credit score, and not all lenders use the same credit reporting agency to decide if they'll lend to you or not.

The first automated credit scoring model appeared in the 1950s, but it wasn't until Congress passed the Fair Credit Reporting Act in 1970 that the process was regulated. The Fair Crediting Act specifies which information the credit bureaus can collect and use as part of your credit score. Even with the regulations, there are three major credit bureaus (TransUnion, Experian, and Equifax). Each has slightly different scoring standards, so you could realistically have at least three different scores.

FICO Score range	Rating	What it means
800+	Exceptional	Well above average Very likely to qualify for credit Likely to qualify for the lowest interest rates
740-799	Very good	Above average More likely to qualify for credit Likely to qualify for lower interest rates
670-739	Good	Near or slightly above average Likely to qualify for credit Likely to qualify for reasonable interest rates
580-669	Fair	Below average May sometimes have difficulty qualifying for credit May be charged a higher interest rate than some other borrowers
Below 580	Poor	Well below average May have difficulty qualifying for credit May be charged a higher interest rate than other borrowers
Source: myFICO

What credit score do you start with?

While it's not possible to have a credit score of 0, you can have no credit score. This may also be referred to as having a "thin credit file." If you have never taken out any credit or have a credit history that's shorter than six months, you won't have a score at all. 

Once people do start to build credit, then their score is based on how responsibly they've used their credit to date. You could start with a very high credit score or a lower score, depending on your first six months of credit history.

What’s the best credit score you can get?

Credit score ranges vary depending on the credit scoring agency. But generally, the highest credit score is between 800 and 850 at most credit reporting agencies.

What’s the worst credit score you can get?

For most scoring agencies, the lowest score is 300, but depending on the scoring model, credit scores can start from as low as 250.

Why credit scores matter

Your credit score may not directly affect your daily life, but when it does matter, it really matters.

Lenders may have a minimum credit score requirement when you apply for personal loans, home loans, auto loans, student loans, and credit cards. If you have a higher credit score, creditors see you as less likely to default on your debt, so the lender is more willing to give you lower interest rates and better loan terms. A lower credit score could cost you more over time because you may not qualify for the best interest rates or fees from a lender. In some cases, you may not qualify for financing at all.

Your credit score doesn't just affect your ability to borrow money. Other things your credit score can affect include insurance premiums, cable and internet accounts, cell phone purchases, and your ability to rent an apartment. Some employers even ask to look at your credit history before making a hiring decision.

Your credit score is only part of your financial picture. Your credit report — which lenders also look at — offers a more complete view of your payment history and determines your credit score. Make sure to check your report at least once or twice per year to catch any errors.

Factors that determine your credit score

While you may have slightly different credit scores depending on which reporting agency you look at, they all use the same basic information to determine your credit score. Information that could affect your credit score calculation includes:

• Payment history: How often you paid your bills on time, if you've made late payments, and how late those payments were.
• Credit utilization rate: Your credit utilization ratio is the percentage of total available credit you are using (includes loans and credit card balances).
  
• Credit mix: The number, types, and age of your credit accounts. For example, credit cards and mortgages are two different types of credit.
• Total debt: The total amount of all of your loans and credit cards.
• Average age of accounts: The length of time that your accounts have been open, averaging the age across all your accounts.
• Number of credit inquiries: The number of times you've given banks or lenders permission to conduct a hard credit pull when applying for credit cards or loans. Too many hard inquiries in too little time can lower your score.
• Public records: Records that show items such as bankruptcy will factor into determining your credit score.

Types of credit scores

The two major types of credit scores are FICO and VantageScore. However, some lenders have created their own credit scoring systems. Some lenders even use FICO or VantageScore as a jumping-off point and then put that information into their own systems to get their own credit scores. But in most cases, you just need to be familiar with FICO score vs. VantageScore:

• FICO: The Fair Isaac Corporation provides FICO scores. It's the most popular credit score measurement and is customizable by industry and client needs. The FICO scoring model was introduced in 1989.

• VantageScore: The VantageScore is a combination of information from Equifax, Experian, and TransUnion. It launched in 2006. The two newest VantageScores are VantageScore 3.0 and 4.0.

What is a good FICO score?

A good FICO score typically ranges from 740 to 799. The highest FICO scores are between 800 to 850. “Good” and “excellent” FICO scores indicate to borrowers that you are a lower risk, which means you're more likely to pay your debt back on time.

FICO score ranges

FICO credit scores range from 300 to 850. Jumping up or down as little as 50 to 60 points can put you in a different score range completely. Here’s what it can mean:

• Poor (300-559): You may not qualify for credit or be required to utilize a prepaid debit or secured credit card.
• Fair (580-669): Those with scores in this category may be approved at higher interest rates or fees.
• Good (670-739): Applicants in this range are less likely to become delinquent on future payments and may qualify for most types of credit.
• Very good (740-799): Borrowers with scores in this range qualify for better interest rates and lower fees.
• Excellent (800 to 850): Borrowers with scores in the highest range are typically eligible for the best interest rates and higher borrowing limits.

What factors determine your FICO score?

The FICO score considers five categories when factoring your three-digit score: Payment history, amounts owed, new credit, length of credit history, and credit mix (the types of loans and credit you have). The score breakdown below shows you how much each section affects your total score:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• New credit: 10%
• Credit mix: 10%

If you’re trying to improve your credit score, the best thing you can do is make on-time payments and reduce the amount of total debt you owe. Those two categories make up 65% of your total score.

What is a good VantageScore?

VantageScore is similar to FICO, with slightly different credit ranges. The best credit scores on a VantageScore scale are between 750 and 850, with good scores falling between 700 and 749.

VantageScore ranges

A VantageScore can range from 300 to 850. Gaps between score ranges are a bit higher with VantageScore.

• Very poor (300-549): Applicants aren't likely to be approved for credit in this range.
• Poor (550-649): Borrowers with these scores may qualify for credit approval but often have higher interest rates or larger deposit requirements.
• Fair (650-699): Applicants are likely to be approved for most credit options but may have higher interest rates.
• Good (700-749): Borrowers with scores in this range qualify for most credit options and are likely to access better interest rates.
• Excellent (750-850): Applicants with scores in this range qualify for better interest rates, higher loan limits, and lower fees.

What factors determine your VantageScore?

VantageScore considers five different factors, including payment history, credit age/type, percent of credit used, recent credit behavior/ available credit, and total balance owed. The score breakdown below shows you how each factor affects your score. Note that VantageScore has slightly different weights than the FICO:

• Payment history: 40%
• Age and type of credit: 21%
• Percent of credit used: 20%
• Total balance owed: 11%
• Recent behavior and available credit: 8%

In the VantageScore, payment history is more heavily weighted, and your mix of credit is more important than the total balance of your debt. Having a mix of revolving and installment debts and making payments on time make up 61% of your total score.

Which credit score is more important?

It depends. VantageScore is better for people with a shorter credit history as it begins monitoring your credit in as little as one month, whereas a FICO score requires at least six months of credit history.

The FICO score has been around longer. First introduced in 1989, about 90% of lenders use the FICO score. In contrast, VantageScore was first introduced in 2006 and is not used by as many companies. If you're planning a major purchase, odds are your FICO score will be more heavily weighted by your lender.

How to check your credit score for free

It's a common misconception that you have to pay to access your credit score. Several credit monitoring services, like Credit Karma, allow you to check your score for free.

Many credit card companies also offer free credit score access. It's worth noting that these scores can be different than your FICO score, but they can give you a close approximation of what the major scoring agencies are saying.

You are also entitled to one free copy of your credit report each week from each of the three credit bureaus. This is required by federal law, and you can request these reports by going to AnnualCreditReport.com. Note that your free credit report doesn't include your credit score.

Finally, if you've applied for a mortgage or other loan and are turned down, the lender is required to send you a notice explaining why they've declined to loan you money and your credit score information.

How to improve your credit score

Improving your credit score takes a lot of patience and a bit of work, especially if you've struggled to pay off debt, missed payments, or had bills sent to collections. Fortunately, the adage "time heals all wounds" is appropriate for credit scores. It may take months (or even years in some cases), but there are also things you can do to potentially improve your credit score in as little as 30 days.

The most important things you can focus on to increase your credit score include making all of your debt payments on time and reducing credit card debt. As these two factors are major players in the credit-scoring formulas, they will have the largest impact over time.

Other things you can do is stop applying for new accounts (at least for a little while) and leave accounts open, even after you've paid them off. Cut up the cards, toss them in the freezer, or bury them in the yard if you don't trust yourself not to use them, but leave the accounts open to keep your credit history aging. Also, work on learning more about how to manage your money so that once you work your way up to excellent credit, you know how to maintain it.

FAQs about credit score basics

Bottom line

A good consumer credit score involves using credit responsibly and having various types of credit accounts. And it could give you access to the best credit cards. If you have bad credit, there are steps you can take to improve. You could even see improvements relatively quickly. It will take some effort though, including developing a budget and possibly starting a side hustle to bring in extra funds.