What Is A Good Credit Score? And How To Improve Yours

A good credit score is a key to opening many doors. It represents your ability to borrow and repay money in a timely manner. The seemingly puzzling three-digit number can be difficult to understand. However, with the right tools and education at your disposal, you can improve your credit score sooner than you think.

What Is Considered A Good Credit Score?

FICO® Score 8 and VantageScore® 3.0 are the two main credit score models. While both vary slightly, due to the difference in criteria and algorithm, these models serve as the blueprint that the three main credit bureaus use to generate your credit reports. Most lenders use one or both models to make their lending decisions.

Understanding credit score ranges is great for managing your financial health. Scores typically fall into categories such as poor, fair, good, and excellent. These distinctions help lenders assess your creditworthiness and can impact your ability to secure loans, mortgages, and favorable interest rates. Understanding where you fall within these ranges empowers you to make informed decisions to improve your financial standing. A credit score of 740 – 799 is labeled “Good” using the FICO^® model while a score of 661 – 780 is identified as “Good” using the VantageScore^® model.

Factors That Impact Your Credit Score

Having an understanding of what elements can impact your credit score will help you understand what you can do to improve and maintain it. Here are some factors that both scoring models may consider.

Payment history: Payment history reflects whether you’ve paid back your loans on time or if you struggle to make payments.

Amounts owed: The amount you owe in loans and credit cards. The higher the amount, the more likely a lender may think you will make a late payment or miss a payment.

Credit utilization: How much of your available credit is being used. If you do carry a balance, it’s generally a good idea to keep the balance under 30% of your credit limit.

Length of credit history: The length of credit history focuses on the amount of time you’ve had a loan, this also includes your oldest and newest accounts age plus the average of all of them.

New credit: New credit considers all the new debts, loan applications, and credit inquiries that have been added to your report in the past 12 months.

Credit mix: Having a variety of credit types, such as credit cards, mortgages, and other loans, gives lenders a better sense that you can handle multiple payments responsibly.

How To Improve Your Credit

There is no easy quick fix when it comes to improving a credit score – it takes time and patience. But it can be done by following some tips and taking it day by day.

Making consistent payments on time can have a large impact on your score. The longer your record of on-time payments, the more likely your score is to increase. If you are struggling with this, most banks have an auto-pay feature. If needed, try to at least pay the minimum on all your bills on time.

Reducing credit utilization to about 30% can also have a positive impact on your credit score. If you owe a low amount of money, it shows that you are not relying too much on credit to pay your bills. To get started with reducing your debts, make your payments on time and pay more than the minimum payments whenever possible to avoid additional interest charges. Another way to help keep your credit utilization low is to lower your balances and increase your credit limit, although this isn’t recommended if you believe you will continue to spend more than you can pay back.

A longstanding, diverse credit history shows lenders that you have a history of responsible repayment and that you can handle having a mix of credits. Keep your oldest accounts open and only open different types of credit accounts when you absolutely need them. This is important, since every time you apply for a new credit card or a loan, it will result in a hard credit inquiry that could negatively impact your score in the short term. Be conscious of how often you apply for credit and space applications out, if possible.

FAQs About Credit Scores

Here are some of the most asked questions about your credit score journey.

What can I get with a good credit score?

With a good credit score, you can more easily secure favorable terms on loans such as mortgages and auto loans, enabling you to purchase a home or finance a car at lower interest rates. Additionally, landlords are more likely to approve your rental application for an apartment, and utility companies may waive deposit requirements with a higher score. Moreover, a good credit score can lead to better credit card offers with higher limits and rewards, providing additional flexibility and financial benefits. Overall, this can open doors to achieving various financial goals and accessing a wide range of products and services on advantageous terms.

How long does it take to improve my credit score?

How long your journey might take varies on your starting point and the specific actions you take. Generally, you may start seeing some positive changes within a few months to a year, but significant improvements can take several years. Consistently practicing good credit habits, such as keeping debt levels low, making payments on time and avoiding opening multiple new accounts in a short period can expedite the process. It's essential to regularly monitor your credit report, dispute any inaccuracies and be patient as you work towards building a stronger credit profile. While there's no quick fix, staying disciplined and focused on responsible financial behaviors will gradually lead to a better credit score over time.

How rare is an 800 credit score?

An 800 credit score is considered rare. According to FICO ^®, only about 21% of Americans have a credit score of 800 or above. This means that roughly one in five adults has attained the highest tier of creditworthiness, reflecting a strong history of responsible credit management, on-time payments and low utilization ratio. While reaching an 800 credit score is challenging, it's not impossible with diligent financial habits and careful credit management over time.

Which credit score is most important?

While there isn't necessarily one single "most important" credit score, the FICO^® Score is often considered highly influential due to its widespread use by lenders. However, most people typically have more than one credit score because different scoring models may be used by lenders and financial institutions. Additionally, each of the three major credit bureaus calculates its own version of a credit score based on the information in its credit reports. These scores may vary slightly due to differences in scoring algorithms and the data each bureau collects. All three bureau scores are important because lenders may use any one of them, or a combination, when making lending decisions. Therefore, it's important for consumers to monitor and maintain good credit across all three bureaus to ensure favorable outcomes when applying for credit.

What’s the difference between FICO^® Score And VantageScore^®?

FICO^® Score and VantageScore^® are both credit scoring models used by lenders to assess a borrower's creditworthiness, but they have differences in their calculation methods and score ranges. FICO^® Score is the most widely used credit scoring model. It considers factors such as payment history, credit utilization, length of credit history, new credit accounts, and credit mix. Scores range from 300 to 850, with higher scores indicating better creditworthiness. On the other hand, VantageScore^® was developed considering similar factors but may weigh them differently to FICO^®. VantageScore^® ranges from 300 to 850, mirroring FICO^® Score's range for easier comparison. The existence of multiple scoring models provides lenders with flexibility and options in evaluating credit risk, while also fostering competition and innovation in the credit scoring industry.

The Bottom Line: A Good Credit Score Can Be Within Reach

A credit score between 661 – 799 is “Good” depending on the model used. This shows lenders that you are responsible for borrowing and repaying money in a punctual manner. With the right tools and knowledge, a good credit score is within reach for everyone. Download the Rocket Money^SM app to help understand your credit score and track your overall financial health.