Your credit score is incredibly important. In fact, this number is so influential on various financial aspects of life that it can determine your eligibility to be approved for credit cards, car loans, home mortgages, apartment rentals, and even certain jobs. Knowing what your credit score is, and what range it falls under, is important so you can decide what loans you can apply for, and if necessary, if steps need to be taken to improve your score.
In our credit score series, we’ve gone over the above as well as what factors affect your credit score and what your starting credit score is–so you can go back to previous chapters if you need to brush up on your knowledge. But in this chapter, we’ll be discussing what is considered a good credit score.
Keep reading to get answers to “what is a good credit score?” and “how can your credit score benefit you?”. Or, you can use the links below to navigate through the post.
What Is a Good Credit Score?
At the end of the day, the higher the credit score you have, the better. The average credit score on the FICO score scale is 716 in the U.S., but the highest possible credit score you can get is 850.
Generally speaking, a good credit score, which is in the high 600s or above, can make you eligible for more loans and credit cards and can even help you qualify for better terms when you borrow.
How do you know if you have a good credit score?
Your credit score and credit history background are documented in credit references, which are documents that are given to lenders when you’re looking to borrow money. Your credit references give insight into your creditworthiness as a borrower, and having a high credit score will reflect better on your part and make you more likely to qualify for a loan.
It’s important to check your score often to make sure it remains stable and so you can quickly identify any potential fraudulent activity or mistakes, like if a bill you paid for gets sent to collections.
If you do catch any fraudulent activity or mistakes on your report, make sure you dispute your credit report so it doesn’t impact your credit score. You can stay on top of your credit history with a free credit score report, which you can get once a year.
What Is Considered a Good Credit Score By Lenders?
So, what is considered good credit by lenders?
While there are general guidelines for what constitutes a good credit score, different lenders–including credit card providers, mortgage lenders, and landlords–will set their own parameters for what they accept based on the circumstances.
A lender will use your credit score to evaluate your:
- Loan eligibility
- Credit limit
- Interest rates
If you’re looking to qualify for a loan, you should do some research about what credit score you’ll need. If your current credit score is too low to qualify for a loan, fortunately there are several ways you can increase your score. In fact, you can even raise your score in as little as six months, depending on where you’re currently sitting and if you can implement good credit habits quickly.
What Is a Good Credit Score to Buy a House?
Generally speaking, you need a credit score of at least 620 to qualify for a conventional loan to buy a house, but this can differ for each situation and lender. If your score is below 620, a lender won’t be able to approve your loan, or if they do, they may offer you a higher interest rate.
What Is a Good Credit Score to Buy a Car?
But what is a good credit rating for buying a car? In most cases, you’ll need a credit score of at least 500 to buy a car. Better credit–like a score of 660 or above–means lower costs, so the higher your credit score is, the lower your interest rates should be. For more on how credit score ranges work, keep reading so you can have a better idea where you fall.
The Credit Score Range Scale
So we’ve answered “what is a good credit score rating”, but what is the credit score range scale?
You can have different credit scores based on different credit models, but the most common credit score used by lenders and other business entities is the FICO score, which ranges from 300 to 850.
To create credit scores, FICO uses information from one of the three major credit bureau agencies–Equifax, Experian or TransUnion. Knowing this range is important because it will help you understand where your specific number fits in.
Know what factors influence a good credit score to help improve your own credit health.
As far as lenders are concerned, the lower a consumer’s number on this scale, the higher the risk. Lenders will often deny a loan application for those with a lower credit score because of this risk. If they do approve a loan application, they’ll make consumers pay for such risk by means of a much higher interest rate.
For a more in-depth overview of credit score ranges, see Chapter 4.
Understand Your Credit Score
Within the credit score range are different categories, ranging from bad to excellent. Here is how credit score ranges are broken down:
Bad credit: 580 or Lower
Lenders generally consider a credit score of 580 or lower as bad credit. A number of past activities could have landed you in this category, including a string of late or missed credit card payments, maxed out credit cards, or even bankruptcy.
Younger people who have no credit history will probably find themselves in this category until they have had time to develop their credit. There are various consequences of bad credit. If you’re in this bracket, you’ll be faced with higher interest rates and fees, and your selection of credit cards will be restricted.
Unfortunately, if your spouse has bad credit, this can impact your credit score, too. Marriage makes you a combined financial unit, so your spouse’s bad credit will reflect negatively on yours. However, there are various ways you can combat this to bring your credit back up to speed.
Fair Credit: 580-669
This is considered an average score. Lingering within this range is most likely the result of having too much “bad” debt, such as high credit card debt that’s grazing the limit. Within this bracket, lenders will have a harder time trusting you with their loan.
Good Credit: 670-739
Having a credit score within this range will afford you more choices when it comes to credit cards, an easier time getting approved for various loans, and being charged much lower interest rates on such loans.
Very Good Credit: 740-800
Credit scores in this range are considered above average and often qualify for fairly low rates. If you fall within this credit score range, you shouldn’t have much trouble finding loans and lines of credit to finances purchases.
Exceptional Credit: 800+
Consider your credit score excellent if your number falls within this bracket. You’ll be able to take advantage of all the fringe benefits that come with credit cards, and will almost certainly be approved for loans at the lowest interest rates possible.
What’s Your Credit Score?
Federal law allows consumers to check their credit score for free once every 12 months. But if you want to check more often than this, a fee is typically charged. Luckily, there are other avenues to take to check your credit score.
Mint has recently launched an online tool that allows you to check your credit score for free without the need for a credit card. Here you’ll be able to learn the different components that affect your score, and how you can improve it.
You’ll be able to see your score with your other accounts to give you a complete picture of your finances. Knowing what your credit score is can help determine if you need to improve it to help you get the things you need or want. Visit Mint.com to find out more about how you can access your credit score–for free.
How You Can Use a Good Credit Score to Your Advantage
There are many advantages to having a good credit score, such as:
- Lower interest rates on credit cards and loans
- More room to negotiate
- Better chance for credit card and loan approval
- Easier approval for renting
- Better car insurance rates
- Get approved for higher borrowing limits
- Get utility services more easily
What Is a Good Credit Score?: Key Takeaways
- The higher the credit score you have, the better, but a good credit score is in the high 600s or above.
- Different lenders/landlords will set their own parameters for what they accept for a credit score based on the circumstances.
- Many lenders require a credit score of at least 620 to qualify for a conventional loan.
- You’ll typically need a credit score of at least 500 to buy a car.
- The FICO score ranges from 300 to 850.
Prioritizing Good Credit Can Only Benefit You in the Long Run
It’s never too early to start prioritizing good credit. A high credit score opens the door to endless opportunities, so start building your credit today. And if you need a way to check your credit score and keep an eye on your finances, you can use the Mint app, which is free and easy to access on the go.
With an overview of the answer to “what is good credit?” covered, you can move on to the next chapter in the series, which covers how to build credit.
Sources: FICO 1, 2 | U.S. Bank | Upsolve