Both of the leading credit-score companies, Vantage and FICO, define “good” credit the same way: a score of at least 660 but below 720, which is the start of the “excellent” range on the standard 300 to 850 scale.
Roughly 17% of Americans with credit scores are considered to have good credit by this definition — 55% if you include the “excellent” crowd, according to WalletHub data. And if you’d like to see how your own standing stacks up against this benchmark, you can get your free credit score from WalletHub, the first and only website to offer free credit scores and full credit reports that are updated on a daily basis.
Below, you can also learn more about what typically constitutes good credit and the accompanying credit-score tiers. Just bear in mind that creditworthiness ultimately is in the eyes of the beholder. The designation simply is more subjective than you might think, depending on lenders’ differing standards and the hundreds of unique credit scores – many of which are proprietary secrets – available to serve as measuring stick. That makes good credit a moving target and creates room for a more-complex answer to accompany the simple explanation already provided. So in addition to explaining why good credit is important, how to build a good score and what else you’ll need to accomplish your financial goals, we’ll also get into some possible alternate definitions.
|Credit Standing||VantageScore Range||FICO Score Range||Qualifications|
|Excellent||720 – 850||720 – 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||660 – 719||660 – 719||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 – 659||620 – 659||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||300 – 619||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
See where you stand by checking your credit score for free on WalletHub – the only site that offers free daily updates.
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 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.
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.