What Is Considered A Good Credit Score?
Everyone knows a three-digit number is the deciding factor between scoring a loan and earning a rejection letter. What you may not know is credit score varies by system. The main system, FICO, contains number ranges representing poor, fair, good, very good, and exceptional. FICO, unfortunately, isn’t the only credit score system.
VantageScore 3.0 uses number ranges to represent very poor, poor, fair, good, and excellent. Experian, Equifax, and TransUnion, the main credit reports, contain individual scoring systems based on FICO, VantageScore 3.0, and individual research from independent credit score companies. The five systems confuse consumers about which scores are acceptable. Furthermore, lenders and banks contain a separate definition of a good credit score based on the five systems, consumer history, and independent research. This further confuses new consumers on which score is acceptable. What score equals a good rating?
To answer this, you need to figure out which scores are acceptable across the board. To understand what’s acceptable across the board, you need to understand the credit score and how it’s calculated.
Rules of the Game
The calculations behind good and bad credit scores are valuable. The answers tell customers the steps necessary to raise credit scores and the pitfalls to avoid lowering credit scores. Good scores contain several factors, and all factors must gel to create the best score possible.
• Payment history
• Payment history longevity
• Credit variety
• New Credit Applications/Inquiries
• Outstanding debt
• Credit utilization
Credit variety is about types of credit available. Lenders and credit score companies love seeing different credit cards, loans, mortgages, car payments, medical bills, and utility bills on your credit account. Outstanding debt should be below 30% of the total credit limit. The ideal percentage is 10%. Credit utilization represents the ratio between the bill balance and the max credit limit on the card. Customers should aim for low ratios. The rest is straightforward. Expect bankruptcies, liens, and court payments to affect credit score negatively.
The Scoring System
After understanding the calculations, the scoring system for FICO, VantageScore, Experian, Equifax, and TransUnion becomes easier to navigate. Still, a good credit score in one system is fair or poor in the second one. Customers should receive their credit score first and determine where the score lands on their scoring system afterward. As stated before, the best score fits within everyone’s scoring system guidelines. Since Equifax, Experian, and TransUnion use FICO and VantageScore in their tabulations (and the independent research is beyond your control), focus on pleasing both FICO and VantageScore.
FICO and VantageScore 3.0 give customers a score of 300-850. Customers should look for Good, Very Good, Excellent, or Exceptional next to their credit score. The lowest of the four, a Good rating, begins at 670 for FICO and 700 for VantageScore. The 670 score is Good for FICO and “Fair” for VantageScore. Meanwhile, 700 please both FICO and VantageScore.
- Research a lender’s credit score system before applying for a loan. Do they follow a scoring system or does the company create a unique version? The answer will determine whether lenders will loan money to you or pass you up for someone more favorable. The answer also determines your interest rate.
- Never focus on one aspect of credit scores. The best credit scores contain variety. For example, many assume the credit score is excellent because you pay bills on time. In reality, payment history represents about 35% of your credit score.
- Since scores fluctuate by company, never focus on a particular number to reach. Instead, focus on staying within a range that agrees with all companies. In this case, 700 is the minimum and 850 is the maximum.
Because lenders view credit scores as their first impression of you, it’s important for consumers to see their credit score. Otherwise, credit approval for large purchases becomes stressful. As always, customers should secure a job or reasonable income to increase credit approval.