For anyone navigating the world of personal finance, understanding credit scores is essential. When it comes to credit scores, which typically range from 300 to 850, knowing what constitutes “good credit” is a key starting point. Generally, a credit score in the mid-600s and above is considered good, while scores in the high 700s to 800s are considered excellent. In fact, a significant portion of the population falls into these ranges. Approximately one-third of consumers have FICO Scores between 600 and 750, and an impressive 48% boast scores even higher. The average FICO® Score☉ in the U.S. in 2023 was 715, highlighting that good credit is achievable for many.
Lenders utilize credit scores as a crucial factor in their decision-making process. While each lender has its own specific criteria, a higher credit score generally translates to better financial opportunities for borrowers. This often means qualifying for credit cards and loans with more favorable terms, such as lower interest rates. The two primary credit scoring models, FICO® Score and VantageScore®, share similar scoring factors despite slight variations in their ranges.
Let’s delve deeper into what defines a good credit score, the factors that influence your creditworthiness, and actionable steps you can take to improve your credit standing.
Decoding Good Credit: FICO® Score Breakdown
The widely-used base FICO Scores have a range from 300 to 850, and the “good credit score” range within this scale is specifically defined as 670 to 739.
FICO is known for creating a variety of credit score types tailored to different lending industries. Beyond the “base” FICO Scores used across industries, they also develop industry-specific scores for credit card issuers and auto lenders. Interestingly, these industry-specific FICO® Scores have a different range of 250 to 900. Despite this expanded range, the categorization remains consistent, and a “good” industry-specific FICO® Score still falls within the 670 to 739 bracket. Scores exceeding this range are categorized as very good or exceptional, indicating even stronger creditworthiness.
Understanding Good Credit with VantageScore
VantageScore 3.0 and 4.0, the latest iterations of this scoring model, also utilize a 300 to 850 range, mirroring the base FICO Scores. For VantageScore, a “good credit score” is defined as 661 to 780.
VantageScore distinguishes itself by not offering industry-specific credit scores. However, it has evolved its models over time. While the initial VantageScore versions 1.0 and 2.0 used a range of 501 to 990, these are not commonly used by lenders today.
Key Factors Influencing Your Credit Scores
Regardless of whether you’re looking at FICO or VantageScore, several common factors play a significant role in determining your credit scores. These factors can be broadly categorized as follows:
It’s important to note that FICO and VantageScore may weigh these categories differently in their scoring models.
FICO® Score Factors: A Percentage-Based Breakdown
FICO provides a percentage-based estimate of how each category generally influences your credit score. However, the precise percentages can vary depending on the specifics of your individual credit report. The scoring factors considered by FICO, in order of their general importance, are:
VantageScore Credit Score Factors: Levels of Influence
VantageScore ranks the factors by their general level of influence on your credit score. Similar to FICO, the actual influence can vary based on your unique credit profile. VantageScore’s factors, ordered by influence, are:
| VantageScore Credit Scoring Factor | Importance |
|---|---|
| Payment history | Extremely influential |
| Total credit usage | Highly influential |
| Credit mix and experience | Highly influential |
| New accounts opened | Moderately influential |
| Balances and available credit | Less influential |
Information Not Considered in Credit Scores
It’s also important to understand what factors FICO and VantageScore do not take into account when calculating your credit scores. These include factors like:
Good Credit for Major Purchases: Home and Auto
Having good credit is particularly crucial when making significant purchases like a house or a car.
Good Credit for Buying a House
To maximize your chances of mortgage approval and secure a lower interest rate, aiming for a credit score in the good range or higher is highly recommended. For FICO® Scores, this means striving for at least 670.
While the absolute minimum credit score to buy a house can vary from 500 to 700, it largely depends on the specific type of mortgage loan and the lender’s requirements. Many lenders for conventional mortgages often require a minimum credit score of 620. Government-backed mortgages have varying minimums as well.
| Minimum Credit Score for Government-Backed Mortgages |
|---|
| FHA home loans |
| USDA loans |
| VA loans |
Remember, your credit score directly influences the interest rate and repayment terms of your mortgage. Lenders assess risk based on your creditworthiness. While obtaining a mortgage with bad credit might be possible, improving your score before applying for a mortgage is always the more financially sound approach.
Good Credit for Buying a Car
While there isn’t a fixed minimum credit score to buy a car, a VantageScore of 661 or higher is generally considered good and can lead to better auto loan terms. Higher scores typically unlock more favorable interest rates and loan conditions.
Auto lenders view lower credit scores as higher risk. Applicants with poor or fair credit will likely face higher interest rates and potentially lower loan amounts. If your score isn’t in the good range, working to improve your credit before buying a car can save you money in the long run.
The Landscape of Different Credit Scores
The existence of multiple credit scores stems from the fact that credit scoring companies are constantly refining their models and offering them to lenders.
Lenders rely on credit scores for various decisions, from loan approvals to managing existing accounts, such as credit limit adjustments. They have the flexibility to choose which scoring model they prefer to use.
Both FICO and VantageScore develop and sell distinct credit scoring models, regularly updating them with new versions to incorporate technological advancements and shifts in consumer behavior. Lenders can then choose to adopt these newer models or continue using older versions already integrated into their systems.
VantageScore’s Credit Score Versions
VantageScore provides a generic tri-bureau scoring model, designed to be applicable across all lender types. This model can assess credit reports from all three major credit bureaus: Experian, TransUnion, and Equifax.
Since its inception in 2006 with VantageScore 1.0 (no longer offered), VantageScore has released several versions. VantageScore 4.0 in 2017 marked a significant update as the first generic score to incorporate trended data, which analyzes changes in balances and credit utilization over time.
The latest iteration, VantageScore 4plus™, launched in May 2024, introduces the option for consumers to link a bank account and share banking data. With consumer permission, VantageScore 4plus™ can utilize this banking information to potentially recalculate the credit score.
| Recent VantageScore Credit Score Versions |
|—|—|—|
| | VantageScore 3.0 | VantageScore 4.0 | VantageScore 4plus |
| Only considers data from a credit report | X | X | |
| Can consider additional data with your permission | | | X |
| Considers trended data | | X | X |
FICO’s Credit Score Variations
FICO pioneered credit scoring based on consumer credit reports in 1989. While recent FICO® Score versions share names like FICO® Score 8, FICO develops different versions for each credit bureau.
FICO Scores are broadly classified into three types:
- Base FICO Scores: These scores, ranging from 300 to 850, are designed for general use by any type of lender. They predict the likelihood of a consumer defaulting on any credit obligation.
- Industry-specific FICO Scores: Specifically for auto lenders and credit card issuers, these scores (range: 250-900) predict the likelihood of default on those specific account types.
- FICO Scores with alternative data: Models like UltraFICO® and FICO XD (range: 300-850) incorporate alternative credit data. UltraFICO® can consider linked deposit account information, while FICO XD can score individuals using non-traditional payment history from other databases like telecom or utility payments.
FICO industry-specific scores build upon base FICO® Scores. FICO regularly releases new score suites, such as the FICO® Score 10 Suite, which includes base FICO® Score 10, FICO® Score 10 T (with trended data), and industry-specific scores.
Lender Choice in Credit Score Usage
Lenders have the autonomy to choose which credit reports and scores they request and utilize. Borrowers often won’t know which specific report or score a lender will use, and lender preferences can change or be tested.
The positive aspect is that most FICO and VantageScore models rely on the same fundamental information from your credit reports to calculate your scores. They all aim to predict the same outcome: the probability of a person becoming 90 days late on a bill (generally or for a specific type) within 24 months.
Consequently, the same factors influence all your credit scores. While scores may vary across models and bureaus, they generally tend to move in the same direction over time.
The Importance of Good Credit
Having good credit is more than just a number; it’s a gateway to achieving your financial goals. Good credit can be the deciding factor in loan approvals for major purchases like homes and cars. It also directly impacts the interest rates and fees you’ll incur if approved.
Consider a 30-year, fixed-rate $350,000 mortgage. The difference between a 620 and 700 FICO® Score could mean a monthly payment difference of $138.58. This translates to nearly $50,000 in interest savings over the loan’s lifetime!
Beyond lending, credit scores can influence non-lending decisions, such as apartment rentals. Your credit reports (though not scores) can also be reviewed by employers for hiring or promotion decisions. In many states, insurance companies may use credit-based insurance scores to set premiums for auto, home, and life insurance.
| Average Mortgage Rates Based on FICO® Score |
|—|—|—|—|
| FICO® Score | Interest Rate (30-Year Fixed) | Monthly Payment | Total Interest Cost |
| 620 | 7.71% | $2,806.11 | $549,199 |
| 700 | 7.13% | $2,667.53 | $499,310 |
| 840 | 6.69% | $2,564.49 | $462,214 |
Source: Curinos LLC, December 6, 2024; assumes $350,000 mortgage, 30-day rate-lock.
Strategies to Improve Your Credit Scores
To improve your credit, focus on the underlying factors that influence your scores. The fundamental steps are quite clear:
Other factors, like increasing the average age of your accounts, can also help, but often involve time rather than immediate action.
Regularly checking your credit scores can provide valuable insights for improvement. For instance, accessing your free FICO® Score 8 from Experian provides a lender’s-eye view of your credit profile.
You’ll also receive a score profile, detailing factors that are positively and negatively impacting your score.
Building Credit When You Don’t Have a Score
Credit scoring models cannot generate scores if your credit report lacks sufficient information.
For FICO Scores, the minimum requirements are:
- At least one account open for six months or more
- At least one account that has been active in the past six months
VantageScore is more lenient, able to score reports with at least one active account, even if it’s only a month old.
If you are currently unscorable, you can take steps to build credit:
Understanding Credit Score Changes
Credit scores fluctuate for various reasons, and monthly fluctuations are common as new information updates on your credit reports.
Credit scores may increase when:
- Negative items are removed from your credit report
- Credit utilization decreases
- Collection accounts are paid off or settled
- Consistent on-time payments are added
Conversely, credit scores may decrease when:
- Payments become 30 days past due
- Credit utilization increases
- New credit accounts are opened
- Bankruptcy is filed
Unexpectedly, even positive actions like paying off a loan can sometimes cause a temporary score drop. This could occur if it was your only installment loan or the only one with a low balance, affecting your credit mix.
Credit scoring models use complex calculations, so a single event’s impact varies depending on your overall credit profile. A late payment might severely impact someone with a pristine payment history, while it might have a lesser impact on someone with a history of missed payments.
The Value of Monitoring Your Credit
Checking your credit score before applying for new credit is wise, but regular monitoring provides the opportunity to proactively improve your scores, potentially saving significant amounts on interest over time.
You can monitor your FICO® Score and Experian credit report for free, with daily updates and alerts for suspicious activity. A free Experian account also offers credit-building tools and insights into your credit history and FICO® Score.
