A good credit score is an important indicator of your financial well-being. It can affect what jobs, utilities, and homes you’re eligible for as well as the interest rates and terms of loans and credit cards.
You shouldn’t look at your credit score as the end-all-be-all, but the fact of the matter is that it can dictate much of your personal and financial life — for better or worse. By monitoring your credit score, you will begin to see positive shifts in all aspects of your personal finances, from budgeting and saving to investing and making big-picture money decisions.
There are several different credit scoring models. A good score with one scoring agency may be slightly different than a good score with another agency. Two of the most popular scoring models are FICO and VantageScore.
What Is a Good FICO Score?
FICO credit scoring ranges from 300–850. A good FICO Score lands between 670 and 739. In April 2021, FICO reported that the average FICO Score was 716 — a good score.
| Credit Score Ranges | Rating |
| Below 580 | Poor |
| 580 to 699 | Fair |
| 670 to 739 | Good |
| 740 to 799 | Very Good |
| 800 and up | Exceptional |
Lenders, credit card issuers, and other companies have access to various credit scores depending on their needs. FICO calculates general scores that can be used by virtually anyone to get a basic understanding of your credit history, but the scoring agency also produces individual scores by industry. For instance, lenders can view credit scores specific to credit cards, mortgage, and auto lending. The industry-specific models are scored slightly differently.
What Is a Good VantageScore?
Like FICO, the two newest versions of VantageScore (VantageScore 3.0 and VantageScore 4.0) range from 300 to 850. However, since the information that is included in VantageScore’s algorithms is different, the scores are also different. A good VantageScore sits between 661 and 780 with excellent credit scores being anywhere from 781 to 850.
- Excellent: 781–850
- Good: 661–780
- Fair: 601–660
- Poor: 500–600
- Very poor: 300–499
What Affects Your Credit Score?
Most of the information found in your credit report impacts your credit score. Credit scoring agencies input a number of different data points into their algorithm to determine your score. The information that most strongly influences your scores include:
- Payment history: How reliable you are with making on-time bill payments. If you pay your bills by their due date, your score will go up.
- Credit utilization: The percentage of your total credit that is in use. The lower your credit usage, the more it will positively affect your score.
- Credit history length: How long you’ve had credit. The longer your credit history, the more it helps your score.
- Credit mix: The different types of credit accounts that you have. The more diverse your portfolio is, the better it is for your score.
- New credit: How many new accounts you’ve opened or applied for recently. When you apply for a new account, creditors do a hard inquiry. Hard inquiries decrease your score.
The only information that affects your credit score is data related directly to your credit history. Therefore, you don’t have to worry about your personal information impacting your score. Things that don’t affect your credit score include your: age, race, address, ethnicity, disabilities, employment, marital status, religious or political affiliations, or income.
FICO breakdown
Each credit scoring model has their own way of interpreting the information in your credit report. The most important factor of your credit score to one agency may not be the most important factor to another.
FICO assigns a percentage of importance to each factor of your credit score, and prioritizes them as:
- Payment history: 35%
- Credit utilization: 30%
- Credit history length: 15%
- Credit mix: 10%
- New credit: 10%
VantageScore breakdown
VantageScore, on the other hand, calculates your credit score based on how influential each factor is.
- Total credit usage, balance, and available credit: Extremely influential
- Credit mix and experience: Highly influential
- Payment history: Moderately influential
- Age of credit history: Less influential
- New accounts opened: Less influential
Why a Good Credit Score Is Important
Credit scores do not define you as a person, but they do determine a lot of the personal and financial opportunities that are available to you. Good scores mean better deals. Your credit score dictates how likely you are to be approved for a loan, which cards you’re able to apply for, and what the rates and terms of your loans, credit cards, and insurance premiums will be.
On a more personal level, your credit score can also determine whether you’re approved for jobs, apartment or home rentals, utility services, and phone plans. The higher that your credit score is, the more likely that a company will want to welcome you as a customer.
Your credit score tells lenders, credit card companies, insurers, landlords, and potential employers how reliable you are as a consumer. If you have a poor credit history, lenders perceive you as more of a risk, and you will miss out on financial products, services, and money-saving opportunities.
How to Improve Your Credit Score
If you’re looking for ways to improve your credit score, you should focus on the areas of your credit history that scoring models deem most important.
1. Make your payments on time
Pay your bills on or before the due dates, even if you’re only able to do the minimum amount. If you have trouble remembering payment dates, consider setting up autopay or payment reminders; if you have financial trouble making the minimum payment, try restructuring your budget to better incorporate your necessary expenses like loans and credit card payments. You can also consider lowering your credit limit so you’re not tempted to spend more money than you can afford.
2. Keep your credit card balances low
How much credit you use plays a significant role in your credit score. The lower your credit utilization, the more lenders and credit card companies feel confident that you can use credit responsibly. Experts advise that you use no more than 30% of your total credit at a time — that goes for each card individually, as well as all of your cards combined.
3. Only open an account when you need to
And keep them open as long as you’re able to maintain them. It’s best to minimize hard inquiries on your credit report, as each one causes your score to drop several points. If one credit account is dragging you down, you might want to consider closing it once it’s in good standing. However, keeping an account open can give your score a boost, even if you’re using the available credit conservatively.
4. Check for inaccuracies
Everyone makes mistakes, even credit bureaus. It’s your responsibility to check your credit report for mistakes and outdated information. You can dispute poor credit marks with the credit bureaus (as long as you have a reason to dispute, like if you were penalized for a late payment but really made the payment on time). Checking your credit report and scores regularly can wind up boosting your score and saving you a great deal of money in the long run.
How to Check Your Credit Score
You have access to one free credit report per year from each of the three major credit bureaus — Equifax, Experian, and TransUnion. Request your reports at AnnualCreditReport.com, and try to review them all at once to compare information. If you find any discrepancies, you can dispute them with the individual bureaus.
