What is a Good Credit Score and How to Get It?

Regardless of the financial services you’re looking to access, your credit score plays a critical role. It’s the first thing lenders or financial institutions assess before granting a loan or issuing a credit card. For this reason, knowing your exact score—and understanding how to improve it if necessary—is crucial.

So, what’s a good credit score? In this article, we’ll explore what constitutes a good credit score, the range of scores considered favorable, and practical tips to help you boost your rating.

What Is a Good Credit Score?

The two leading credit scoring models, FICO and VantageScore, both rate creditworthiness on a scale from 300 to 850. However, the division regarding what makes a good credit score is slightly different. Regardless of the system, a higher credit score signifies stronger creditworthiness.

What is considered a good credit score, though? Let’s see how these models compare.

FICO

• 300–580: Poor
• 580–669: Fair
• 670–739: Good
• 740–799: Very Good
• 800+: Exceptional

VantageScore

• 300–600: Subprime
• 601–660: Near Prime
• 661–780: Prime
• 781–850: Superprime

As you can see, FICO categorizes scores into five subgroups, while VantageScore divides them into four. The key difference between the two models lies in the middle ranges: FICO distinguishes “Good” and “Very Good” subcategories (670–799). At the same time, the VantageScore consolidates this range under the “Prime” subcategory (661–780).

If you ask about a good credit score, the answer would be anything that hits around 700 or above. Meanwhile, if you ask about a very good credit score range, ratings lingering close to 800 are considered “Exceptional” by FICO and “Superprime” by VantageScore.

Credit Score Requirements for Financial Objectives

When you consider your financial goals and plan big purchases, such as buying a car or home, you should be aware of the varying credit score expectations lenders typically have for different borrowing purposes. While there are no universal documented score benchmarks, the following insights reflect typical figures taken into account by financial institutions and agencies when they approve borrowing:

• Car Loans/Leases: Scores around 700+ make approvals easier. Yet, if your rating is below 700, you may face higher interest rates or stricter requirements.
• Mortgage Loans: Scores above 500 are generally acceptable, but higher scores often secure better rates and terms.
• Renting an Apartment: You should stick to the principle “the more, the better.” Landlord expectations in terms of safe scores might greatly vary across states and localities, as well as depend on their personal rules for tenants. However, higher scores increase your chances of approval and may influence deposit amounts.
• Credit Cards: Borrowers with a flawless payment history and a good credit score make qualifying for premium cards easier. Those with a poor financial track record might struggle to get rewards or balance transfer cards. They should rather start with options specifically designed for building credit to further qualify for more favorable terms.

5 Key Factors Impacting Credit Scores

Now that we’ve answered the question “What is a very good credit score?” it’s time to find out what stands behind this number that reflects your financial behavior and determines your financial opportunities to a great extent. Understanding what influences your credit score can help you make better financial decisions.

Payment History

Both FICO and VantageScore consider this the most significant factor for determining your rating, which accounts for 35% of the total score. It demonstrates how responsible and consistent you are in making credit payments and catching up with payment schedules. Thus, late payments, defaults, bankruptcies, and accounts set to collection can dramatically lower your score.

Credit History Length

Normally, people start building their history from student loans in their young years and proceed to more serious financial commitments as they go up the career ladder and grow older, hitting their financial goals. The period you’ve had credit accounts also matters for your score calculation. A longer credit history allows lenders more insight into your financial habits, positively influencing your score.

Credit Utilization Ratio

This measures how much credit you’re using compared to the total available credit that you’re currently using. Keeping this ratio under 30% is ideal for maintaining a good score.

Credit Mix

It’s yet another decisive aspect of achieving a good credit score. Lenders prefer to see diverse accounts on your report, such as credit cards, installment loans, and mortgages. Diversity showcases your financial literacy and prowess, proving your ability to juggle various credit types responsibly and get the most out of such an approach.

New Credit Inquiries

Each time you apply for new credit, a hard inquiry is triggered on your report, showing that a lender has checked your history. Suppose you have multiple such inquiries in a short time. In that case, it may signal to lenders that you are experiencing financial distress, which can adversely lower your creditworthiness.

How Are Credit Scores Calculated?

Most people interested in their credit score want to know exactly how it is calculated. Whether we take FICO or VantageScore, neither credit rating service reveals its exact calculation process. However, we know the factors that are taken into account and how much each one of them weighs in the calculation formula.

If we take FICO, the main components for calculation and their importance percentages are:

• Credit Mix: 10%
• New Credit: 10%
• Credit History Length: 15%
• Amount Owed: 30%
• Payment History: 35%

As for VantageScore, the most recent model uses the following calculation formula:

• Available credit: 2%
• Balances: 6%
• New Credit: 11%
• Credit Utilization: 20%
• Credit Depth: 20%
• Payment History: 41%

As you can see, in both models, payment history and credit utilization carry the most weight in the calculation process, underscoring their importance in achieving a good score.

How to Achieve a Good Credit Score?

Notably, credit scores aren’t set in stone. They’re dynamic, constantly evolving markers of your financial health. It means you have the power to influence them and improve your score over time with consistent effort. Here’s how:

• Pay Bills on Time: Since your payment history is the most critical factor in calculating your rating, stick to your payment schedules with diligence. Watch for delays and overdue settlements, and prioritize on-time payments. Set up reminders or automate payments to avoid missing due dates and pay all your bills on time.
• Maintain Low Balances: It’s wise to maintain card balances significantly below your limits. Ideally, aim to pay off these balances monthly. By doing so, you’ll also steer clear of accruing interest.
• Limit New Credit Applications: Stay away from filing multiple credit applications within a short period, since each of them will entail a hard inquiry on your report, showing lenders your potential facial instability.
• Monitor Your Credit Report: Be vigilant about monitoring your report for any changes or suspicious activity. Regularly review your credit report to promptly detect any inaccuracies or fraudulent activity that could harm your score.
• Keep Old Accounts Open: Not many people know that closing your old credit card account will immediately hurt your credit score for some time. When you have older accounts, your credit history increases, which is great for your credit score, so don’t rush to close them unless necessary.
• Diversify Your Credit Mix: If your financial situation is not bad, but you want to take your credit score to the next level, you may want to try managing several different account types. This will enhance your credit profile.