For the average person, trying to determine what a good credit score is can be very tricky. Just looking at the numbers, you would assume a rating as high as 650 should put you at least in the “good” range. For others, anything short of 700 seems destined to be classified as “fair.” The ins and outs of credit scores are a mystery to most Americans, but that doesn’t have to be the case.
Whether you know your credit score right now off the top of your head or not, this article will help you get to the bottom of the mystery and intrigue behind credit scores and reports. You’ll learn about credit score ranges, what they mean, what impacts your score, and how you can work to improve your score if you don’t feel comfortable with your current number.
Different Credit Score Ranges
The first, and most important, thing to realize about a good credit score is that the term “good” is used to define a range of credit scores. There is no singular number, such as 712, that is defined as good, with everything else falling outside of that. Every credit score falls into a greater range that is used to determine the risk involved in lending you money based upon your credit history.
If you’ve conducted your own research on credit score ranges, you’ve probably seen different ranges and different titles for each of these ranges. It’s important not to get hung up on specific terms used and the defined ranges of different companies, but rather, to focus on a range that is generally accepted by all lenders, credit reporting agencies, and credit bureaus as good. Lenders aren’t going to make a decision on your credit worthiness based upon the category you fall in. They’ll look at your score and credit history.
With that said, it’s helpful to establish a general understanding of the different ranges and what they mean to you as a consumer. The following infographic from Credit.org offers a good starting point for defining credit ranges. In that infographic, credit score ranges breakdown as follows:
- Excellent: 740 to 850
- Good: 680 to 740
- Acceptable: 620 to 680
- Subprime: 550 to 620
- Poor: 300 to 550
You can see from the ranges listed above that anything above 740, and up to the maximum of 850, is considered perfect. You’ll have no trouble securing a loan in this range and will likely enjoy lower interest rates. The margin for error between good and acceptable is a pretty tight range of just 60 points in each category. Once you fall into the subprime category though, the range is much wider. Anything below 550 is going to result in difficulty securing loans and high interest rates.
At this point, it is worth noting that there are different ranges defined by other companies. It’s not worth defining and explaining all of them, but you should be aware of this credit score scale from Credit.com. This cites the FICO score ranges and latest version of VantageScore (developed in partnership by Equifax, TransUnion, and Experian). Its definition of credit score ranges looks like this:
- Excellent: 781-850
- Good: 661-780
- Fair: 601-660
- Poor: 500-600
- Bad: Anything below 500
You can see that the dividing line between excellent, good, and fair has been bumped up a bit higher than the Credit.org figures, but in general the ranges are close. Again, it’s important to remember that individual lenders are more concerned with your specific number than the general range you fall into. Just because you are one point below excellent doesn’t mean you’re going to be punished with significantly higher rates.
What These Different Credit Ranges Mean
Now that you know what a good credit score looks like, and the different ranges your score can fall in, what do each of these ranges really mean? If you refer back to that infographic, you can see a general breakdown of the meaning behind each credit score. If you fall in the excellent range, you’ll get the lowest rates on mortgages, auto loans, new credit cards, and lower insurance premiums. Let’s take this chance though to dive a little deeper into the meaning of each of these credit score ranges.
With an excellent credit rating, lenders big and small will feel extremely confident lending you money. You’ll find that whether applying for a mortgage or new auto loan, you’ll get the best possible interest rates, flexible repayment terms, and low (or no) fees. Insurance companies will offer you low monthly premiums because they are equally confident that you’ll pay those premiums on time without fail. Additionally, prospective employers love an excellent credit score because it proves personal and financial responsibility.
If you have a credit score that falls into the “good” range, you can expect to enjoy many of the same advantages as someone with an excellent score. You may pay higher interest rates, face low fees, and have slightly higher monthly premiums, but the difference will be extremely minute. The only real difference between a good credit score and an excellent credit score is the debt-to-income ratio you carry.
There is a slippery slope between good and fair credit ratings. One or two late payments on your credit report rarely results in a drop from good to fair, but if you’ve had recurring late payments, collections accounts, or too much debt, you are likely going to fall down into the fair range. You’ll have a harder time finding a lender to work with, face higher interest rates, and higher monthly premiums for car insurance.
Anything below the fair range just makes securing a loan, opening a new credit card, or purchasing auto insurance more difficult. Additionally, you might find it difficult to land a new job with particular employers. Companies involved in the defense, financial, chemical, and pharmaceutical industries are not likely to hire you with a poor credit rating because you pose an above-average risk for employee theft, fraud, or even blackmail by competing companies to share trade secrets.
What Impacts Your Credit Score?
You know what a good credit score range looks like and what it means to be considered “excellent” or “good,” but what factors impact that score? What about your credit history determines your specific score and, as a result, the range you fall into? Since the FICO credit score is the most commonly used rating in the industry, we’ll take a look at the five components that go into a FICO credit score:
- Payment history
- Credit utilization
- Length of credit history
- New credit
- Credit mix
The first thing to realize is that each of these five components plays into your credit score in a different way. By this, we mean that FICO weighs them differently when putting together an overall credit score.
Payment history accounts for 35% of your overall score and is based upon your history of making repayments on debt. This component includes both your revolving loans, such as monthly credit card payments, and installment loans like a mortgage or student loan. FICO even weighs these types of loans differently. For example, defaulting on a small, revolving loan won’t do nearly as much damage to your credit as defaulting on a large installment loan.
Credit utilization accounts for the next largest chunk of your credit score at 30% of the total. This number is representative of the amount of credit available to you balanced against the amount of debt you carry. For example, if you have multiple credit cards open and most or all of them are near their credit limits, you are utilizing too much of the credit available to you in the eyes of FICO. According to FICO, the best consumers are those with credit utilization of just 7%, but a range of 10 to 20% utilization is OK.
The length of your credit history contributes to 15% of your overall credit score. Younger adults should expect to have a lower credit score simply because they haven’t established a long-term, reliable credit history for lenders to judge their financial stability. More generally though, length of credit history looks at the length of time each account as has been open and the length of time since the last action on that account.
Any new credit lines and the mixture of credit open each account for 10% of your overall score. Opening too many lines of credit at the same time is viewed as a sign of financial distress. Credit mixture is more vaguely defined, but generally speaking, if you can handle repaying multiple types of debt (mortgage, credit cards, student loans, etc.) at the same time it’s a good sign of stability and responsibility.
How to Increase Your Credit Score
Increasing your credit score is easy to do and can be handled entirely on your own, but it will take time to do. The two primary actions you can take to help improve your credit score are paying down debts and establishing good payment history on all accounts.
As you saw above, your payment history and overall credit load account for 65% of your total credit score. If you can establish a good track record of making payments to your credit cards, mortgages, and auto loans, your credit score will start to improve as your payment history normalizes.
Of equal importance is the ability to pay down your debts. Whether you have outstanding student loans or other installment-based lines of credit, paying those down to lower levels will reduce your credit utilization ratio, improving your score over time.
Keep in mind that this will not happen overnight. However, establishing a positive trend in both categories will steadily increase your credit score and reinforce responsible financial controls for you personally, making it easier to maintain a higher score in the future.
If you are able to make these adjustments, but find that your credit score is still low, you may want to request a free credit report to check for errors. Whether it’s a mistake or a blatant reporting error from credit reporting agencies (CRAs), your credit report may contain errors that hold down your score.
Requesting a Credit Report and Addressing Errors
Each of the three major credit bureaus in the United States, Experian, Equifax, and TransUnion, allow you to request a free copy of your credit report once each year to check for errors and find out your credit score. When you apply for a mortgage or auto loan, you’ll likely have a chance to see your credit score courtesy of those lenders, but you won’t see your full report.
You can also request a copy of your credit report any time you like, as many times as you like in a year, but beyond your one free report you will be asked to pay processing fees to the individual credit bureaus in order to obtain a copy of your report. With a copy of your credit report, you have the chance to look it over for errors in reporting or cases of mistaken identity. According to USNews.com, the three most common errors on your credit report include:
- Identity errors: Credit bureaus maintain their own database of consumer data, such as personal and account information. On occasion, bureaus might have errors as minor as incorrect street addresses. Other times, serious errors may occur such as someone else’s name and accounts on your report.
- Incorrect account details: When banks or lenders provide incorrect information to credit bureaus, you can end up with accounts that have inaccurate credit limits reported or incorrect mortgage origination dates.
- Fraudulent accounts: The biggest error is a fraudulent account. This has the potential to do the most damage to your score. This occurs when someone else uses your personal data (such as a Social Security number) to open unauthorized accounts in your name.
Fight Errors with Vullings Law
When you identify errors on your credit report, whether minor or major, it is important to address those issues before they have a negative impact on your credit score. You have the legal right to file a complaint with either the three major credit bureaus or the offending lender or CRA to get inaccurate information corrected or removed (as appropriate) from your credit report. The process includes filing a formal, written letter of complaint to the appropriate agency, awaiting an official response and inquest, and learning about the result.
However, this task can be annoying and time consuming for most people. Vullings Law has legal professionals trained in handling consumer credit issues. We’ll assist you in identifying errors on your credit report, help determine the validity of your claim, and even write your formal complaint letter to submit to lenders or credit bureaus. We’ll take care of tracking and monitoring your claim, and deal with any requests or resubmissions required. In the event that legal representation is required in a court of law, Vullings Law provides that free of charge on qualifying accounts.
A good credit score can mean the difference between easy, affordable access to credit, and high interest rates and loan denial. If your efforts to repair your credit on your own have failed because of errors, contact Vullings Law for the guidance and assistance required to help right the ship and get your credit score back on track to “good” territory.