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What Is A Good Credit Score?

 What Is A Good Credit Score

The FICO credit score is what most banks and lenders use, and anything in the 660-720 range is considered a good credit score under the FICO model (the higher the better).

However, there are more than 1,000 different types of credit scores, and they often utilize different score ranges. So, what’s a good credit score under one model might not be considered good under another. For example, 700 would denote good credit if it’s from FICO but would be below the good credit score range of the Vantage scale. The chart below shows the breakdown for the two most popular credit scores.

Credit Standing FICO Score Range Vantage Score Range Qualifications
Excellent 721 – 850 750 – 850 You have (if ALL factors apply):

1) 5+ years of card/loan experience

2) $10K+ in available credit;

3) never been 60+ days late on a bill;

4) never declared bankruptcy

Good 661 – 720 700 – 749 You have (if ALL factors apply):

1) 3+ years of card/loan experience

2) $5K+ in available credit

3) not been 60+ days late on a bill in the past 12 months

Fair 620 – 660 640 – 699 You have (if ALL factors apply):

1) a credit card/loan

2) <$5K in available credit

3) may have been 60+ days late on a bill in the past 12 months

Bad 300 – 619 350 – 639 You are (if ANY factor applies):

1) currently behind on a credit card/loan

2) close to maxing out your credit cards

3) working your way back from being 60+ days late on a credit card/loan in the past 90 days

4) recovering from bankruptcy filed in the past 3 years

Still not sure if you have good credit? Try CardHub’s Free Credit Estimator or sign up for one of the websites offering free credit scores.

Why is Good Credit Important?

Most people understand that credit scores are important. But just how important is another story altogether.  Your credit standing not only dictates your ability to garner a loan or line of credit as well as the rate at which you’ll pay interest on what you borrow, also impacts your insurance premiums, your ability to lease an apartment, and even your job prospects.

“Many companies think credit history is a way to find out if an applicant is responsible,” says Michael M. Oswalt, assistant professor of labor and employment law at Northern Illinois Law School.  “Companies may use a credit score in combination with other data points – including references, work history, and interview performance – to determine whether an applicant will be a good fit for the job.”

While the use of credit history in hiring is on the decline – a sign of companies understanding that Great Recession difficulties aren’t necessarily indicative of overall trustworthiness – just under half of all companies still request permission to review applicant’s credit history.  The practice is most common with jobs that involve handling money or sensitive information, which means jobs seekers in those fields should be especially cognizant of where their credit stands.

In short, the difference between good and bad credit is a lot of money and a lot of strife. “Good credit scores just make your financial life easier to maneuver,” says Martha Doran, an associate professor of accountancy at San Diego State University. Without it, “you need to pay higher rates, deal with secondary lenders, ask parents to co-sign … none of which are quick or satisfying solutions.”

The following table will give you a pretty good idea of just how much money good credit will save you on an annual basis.

Good Credit Vs. Bad Credit: Annual Savings

*The figures above reflect national average rates and payments and are subject to change based on one’s exact credit score, income, and debt.

How to Get Good Credit

If you don’t already have good credit, your goal should be to attain it.  And while many people ask how to “get” good credit, it’s perhaps more appropriate to wonder how to “build” good credit.  It’s a formulaic process, after all.

The basic premise is that you want to infuse your major credit reports with positive information on a consistent basis in order to devalue any negative information already contained therein or simply add to a thin file.  The easiest and least expensive way to do so is to open a credit card with no annual fees and keep it in good standing by making on-time payments (if you decide to make charges with the card).  Your credit will actually improve even if you simply leave the card locked in a drawer, but the process moves a bit quicker when you make purchases and pay for them as agreed upon.  To learn more, please check out our detailed explanation of how to improve your credit score.

The fundamentals of credit building hold true regardless of your exact starting point, but if you begin with damaged credit you’ll also want to stop the bleeding immediately.  If you’re delinquent on an account, making the payment necessary to become current will prevent further credit score damage.  Unfortunately, the damage is already done if you’ve already charged off or defaulted on an account.

You Need More Than a Good Credit Score

A good credit score is undoubtedly important, but that alone isn’t always enough.  Lenders and other decision makers also pay a lot of attention to your assets, income, and liabilities when evaluating your overall credit profile.

For example, a lot of people are surprised to hear that even people with immaculate credit history will not be able to get approved for a new loan or line of credit if their debt is already much higher than what their income justifies.

That’s why it’s important to not only monitor your payment habits, but also to concentrate on keeping your debt-to-income ratio below 30%.  Taking the following steps will help you do so:

  • Make a Budget:  It’s hard to determine whether or not you’re spending beyond your means if you don’t know how much you’re spending each month and on what.  It’s therefore important to rank your monthly expenses in order of importance as well as cut any excess spending.
  • Build an Emergency Fund:  A financial safety net is essential to preventing income disruptions or unexpected expenses from becoming major problems.  You should strive to amass about a year’s take-home in an account that you can draw from whenever necessary.
  • Utilize the Snowball Approach:  Some debt can be good in that it may allow you to buy a home or secure transportation to work.  But you don’t want everyday expenses to exceed your income.  Developing a budget will help prevent future overleveraging, but it’s also important to pay off amounts already owed.  The best way to do so is to use the Snowball Approach.  That entails attributing the majority of your allotted monthly debt payment to the balance with the highest interest rate while making only the minimum payments on the rest of your debts.  Once the most expensive balance is paid off, repeat with the second most costly, and so on.

Final Thoughts

If you now know that your credit is good, good for you.  Keep up the good work, make on-time payments to all loans and lines of credit, stay out of useless debt, and your standing will continue to strengthen.

If you’re less-than-pleased about your current status, do something about it.  Open a secured card if necessary to get that monthly infusion of information into your credit reports.  Just make sure the information being relayed to the credit bureaus is positive by following the same advice as above.

Editorial Disclaimer: Editorial content is not provided or commissioned by financial institutions. Opinions expressed here are the author’s alone and have not been approved or otherwise endorsed by any financial institution, including those that are CardHub advertising partners. Our content is intended for general educational purposes and should not be relied upon as the sole basis for managing your finances. Furthermore, the materials on this website do not constitute legal advice and should not be relied upon as such. Please let us know if you have any questions or suggestions.

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