What Is A Good Credit Score?
Although there's more than one credit scoring model, the general range runs from 300 to 850, with anything 700 or higher defined as good or excellent.
Like it or not, your credit score is as closely tied to your identity as your name or birthdate.
If your score is low, it can stop you from getting credit—or stick you with high interest rates when you do.
But a good score can open financial doors.
That's why it's important to know your score and to work on making it as high as possible.
Credit score ranges
No matter which credit scoring model a lender uses, your credit score will come in a three-digit number, with the low end starting around 300 and the high end going up to 850 and sometimes 900.
That said, the most common model lenders use is FICO score®.
The company behind the FICO® score has released several versions of its credit scoring model, but the one you'll see most often is the FICO® score 8, which breaks down credit scores as follows:
Different lenders set different standards for what they consider a "good" score, and they set interest rates and other terms around their own criteria.
As a general rule, however, you want to aim for 700 or higher—this puts you in a safe range, where you can expect to get credit without encountering any problems or unfavorable terms.
The other main scoring system is the VantageScore, which was developed by the three major credit bureaus as a competitor to the FICO® Score.
Like the FICO® Score, the VantageScore range runs from 300 to 850, and its breakdown of what constitutes a poor versus a good or excellent score is more or less the same.
Why your credit score is so important
Credit scores have been around for a long time, but they didn't become the backbone of the lending industry until the 1970s. Today, you can't open a credit card, take out a car loan, or buy a house without your lender checking your credit.
When you have good credit, you can borrow more money, and you'll pay a lower interest rate on loans and credit cards.
If your credit score is poor, you can expect to pay much higher interest rates—assuming lenders will work with you in the first place.
Your credit score can even affect you in ways you might not realize.
For example, many employers now run a credit check before making a job offer, and some car insurance companies offer lower rates to people with good credit.
Factors that determine your credit score
Knowing your credit score is just the first step toward getting a good grasp on your creditworthiness.
To truly understand your score—and how you can improve it—you need to know what factors determine your score.Because the FICO® score is the one lenders use most often, we'll concentrate on the five factors that make up this scoring model.
1. Payment history
Your payment history, which is whether you pay your bills on time, makes up 35 percent of your credit score.
This makes it the most important element in your entire score, and it's why even one or two late payments can tank your score.
2. Credit utilization
Your credit utilization is how much total available credit you have compared to how much you're using, and it accounts for 30 percent of your score.
To keep your credit score in the excellent range, you should avoid letting your credit utilization get above 30 percent. For example, if you have a credit card with a $5,000 limit, you shouldn't charge more than $1,500.
3. Credit history
4. New credit
New credit is the number of new accounts you've opened within a short period of time, and it accounts for 10 percent of your FICO® score.
This is why you should avoid opening several new credit cards or other accounts at once. When lenders see a flurry of new credit in your name, it can signal that you're experiencing some kind of financial trouble.
5. Credit mix
The final factor in your credit score is your credit mix, which makes up 10 percent of your score. Ideally, you want a healthy mix of different types of credit.
It can be hard to pin down exactly what lenders want to see, and your lifestyle might dictate what kind of credit types you carry. For example, if you've paid off all your student loan debt, you shouldn't take on new student loans just to diversify your credit.
Fortunately, your credit mix is a comparatively small factor in your credit score. Assuming you pay your bills on time and do well when it comes to the other factors, a lack of credit variety shouldn't have too much of an impact on your score.
6 things that can hurt your credit score
Whether you're trying to maintain good credit or raise your score, certain missteps can drive your score down—sometimes for years.
Here are six mistakes to avoid when it comes to your credit score.
Paying your bills late
At 35 percent of your score, your payment history is the single biggest factor in your creditworthiness.
Missing a payment or paying late can have a significant negative impact on your credit score. Even one or two 30-day late payments can drop your score by around 100 points.
Worse, late payments can stick around for up to seven years, keeping your score down even after you've changed your habits.
To avoid missing a payment due date, consider setting alerts on your phone or computer. Many people also find success by enrolling in their lender's autopay program.
Carrying a high credit card balance
After payment history, your credit utilization rate is the most important factor in your FICO® score.
When you maintain high balances, lenders worry you can't handle your bills and other financial obligations.
To keep your credit score in the good to excellent range, aim for a credit utilization rate at or below 30 percent.
Applying for too much credit
When you miss too many payments or stop paying your bill altogether, your creditor will likely turn over your account to a collection company.
These get reported on your credit report, and they can sink your score by 100 points or more.
As with late payments, a collection account can linger on your credit report for up to seven years. To improve your credit score, it's worth making the effort to get a collection removed early.
Filing bankruptcy is the worst thing you can do for your credit score, which is why you should only consider it as an absolute last resort once you've exhausted other options.
It's not always easy to predict how much bankruptcy will affect your score, as it depends on where your score is to begin with. However, you can expect to see your score drop by at least 100 points, and it's not out of the question for bankruptcy to lower a score by 200+ points.
Depending on which type of bankruptcy you file, it will remain on your credit report for up to 10 years, with little chance of getting it removed early.
No credit history
It may seem like never using credit at all would give you a high credit score. However, this is not the case.
When you lack a credit history, or it's been a long time since you used credit, you're a blank slate to lenders.
They have no way of knowing what kind of financial risk you pose, which is why a lack of credit history can actually lower your score.
5 tips for improving your credit score
If you have bad credit, the good news is you don't have to be stuck with it.
Improving your credit score takes dedication and persistence, but there are several ways to raise your score.
At a minimum, you should review your credit report once every 12 months, although it's better to check it more often than that.
By law, you're entitled to a free copy of your credit report every 12 months from annualcreditreport.com.
You can also sign up for Discover Scorecard, a free service offered by Discover. You don't need to be a Discover cardholder to use the service, which is free and updates your credit information every month.
When you review your credit report on a regular basis, you have a better chance of spotting inaccurate information that can pull down your score.
Finally, if you prefer to enlist some professional help to help get your score back on track, consider hiring a credit repair company to do it for you.
5 tips for establishing a credit history from scratch
Whether you're new to credit, you're trying to repair bad credit, or it's been some time since you were an active credit user, you'll have to work at building up (or rebuilding) good credit.
While this might seem like a daunting task, there are several credit-building strategies you can use to establish a positive score.
Here are five to get you started.
1. Borrow someone else's credit
In you lack a credit history, or your current credit score is bad, try hitching a ride on someone else's credit. You can do this by becoming an authorized user on one of their accounts.
There are two important caveats, though.
First, make sure their lender reports authorized user activity to the credit bureaus, so you get credit for on-time payments. You'll also want to make sure the person you're teaming up with has an excellent credit score.
It goes without saying that you need to be responsible if you plan on becoming an authorized user.
If someone is willing to let you take advantage of their good credit, make sure you pay on time and do everything you can to protect their score while you build yours.
2. Consider a credit builder loan
If you're building credit from scratch, you might have a hard time qualifying for a credit card.
In this case, a credit builder loan can be a good way to get your foot in the door of the credit world.
These loans don't have a credit requirement, which makes them ideal for people who are just starting out.
With a credit builder loan, the lender holds the loan amount in an account, and you make payments toward the balance.
As you pay on time, the lender reports your payments to the credit bureaus, which boosts your credit score. Once the loan is paid off, you receive the money, and sometimes a little interest.
3. Get a co-signer
Another option for building credit is to take out a loan with a co-signer, which can be a good strategy when you don't have the credit history to qualify for a loan by yourself.
Keep in mind, though, that your co-signer will be on the hook for the loan if you stop making payments.
Before you commit, make sure you can afford to stick to the loan's repayment plan.
4. Start with a store credit card
If you're wary about getting a credit card from one of the major lenders, or you don't qualify with your current credit score, you might try starting out with a card from a retail store, such as JC Penney, Old Navy, or Best Buy.
Store credit cards are typically easier to get than a major credit card, but they also come with higher interest rates and fewer perks.
Additionally, you might be more tempted to overspend with a retail card.
5. Open a secured credit card
Secured credit cards are another credit building strategy.
With a secured card, you put money down up front, similar to the security deposit you make when you rent an apartment. If you stop making payments, the lender keeps your deposit.
In most cases, this deposit is your credit limit. As you charge purchases to your card and pay them off, the credit card company reports your on-time payments to the credit bureaus, which helps you build your credit score.
Many secured cards let you transition to a regular credit card after a certain period of time.
This way, you work your way up the credit ladder as your credit score improves and you become more comfortable using credit.
It's impossible to overstate the importance of having a good credit score.
A poor score can saddle you with high interest rates, as well as stop you from financing important purchases like a car or new home.
Fortunately, bad credit scores don't have to be forever.
If you're committed to improving your score, following proven credit building and repair strategies will deliver results.
About the Author
Mike is a recognized credit expert and founder of Credit Takeoff. His credit advice has been featured in CNBC, Investopedia, CreditCards.com, Bankrate, Huffpost, The Simple Dollar, Reader's Digest, LendingTree, and Quickbooks. Read more.