A 2015 study found that the national average FICO credit score was 695 while the national average Vantage score was 673. But what does that number mean? Is that a good credit score? And how do you even get a free credit report and score? When looking at these numbers, it’s helpful to consider the credit score scale ranges from 300 to 850. Whether you are looking at your FICO credit score or VantageScore, similar rating systems apply. Although some lenders may have different criteria on how they judge a score, in general, a score over 700 is considered a good credit score.
What Is a Credit Score?
A credit score is a number calculated based on a variety of factors such as payment history, number of accounts, and amount owed. These factors determine the risk that a lender is taking when you borrow money.
If you have a long payment history and pay your bills on time, you’ll have a higher score that will signal to lenders that you’re responsible and will pay them back in full, on time. Conversely, if you have multiple accounts that have late payments it’s an indicator that you aren’t responsible for managing your money and the risk to lend to you is high.
Credit Scores at a Glance:
Excellent credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600
Who Looks at Your Credit Score?
Credit scores are looked at by landlords, property managers, mortgage lenders, student loan providers, insurance companies, and other lenders. In your lifetime you’ll come across one, if not all, of these individuals who will be judging your trustworthiness based on your credit score. There are other factors that come into play in these situations, but having a good credit score will set you apart from the rest and flag you as a good candidate.
What Is an Excellent Credit Score?
An excellent credit score ranges from 750 to 850. People with excellent credit tend to have at least a year and a half of credit card experience, credit available of $10,000 or more, are never late on a bill and have never declared bankruptcy.
If you have an excellent credit score, you are a relatively safe bet when it comes to lending. You will have to put down less of a deposit when renting and will receive the lowest mortgage rates, saving you in the long run.
What Is a Good Credit Score?
A good credit score ranges from 700 to 749. People with a good credit score tend to have had a little over a year of credit card or loan experience, $5,000 or more available credit and haven’t made a late payment in the last year.
If you have a good credit score, you are a relatively safe bet when it comes to lending but might need to prove your dependability in other ways such as income and employment history. There is room for improvement, but you’ll still receive lower mortgage rates and be eligible for reasonably sized loans.
What Is a Fair Credit Score?
A fair credit score ranges from 650 to 699. People with a fair credit score tend to have at least one credit card or loan, less than $5,000 available credit and have been late on a payment only once, if at all, in the last year.
If you have a fair credit score, you are somewhat concerning in a lender’s eye. It suggests that you have struggled to make payments or have a large debt-to-credit ratio. At this level, you’ll need to work to improve your score or else pay higher mortgage rates and deposits. To improve your score from this, try requesting a higher available credit amount from your bank and be sure to make all your payments on time.
What Is a Poor Credit Score?
A poor credit score ranges from 600 to 649. People with a poor credit score tend to have at least one credit card or loan, less than $5,000 available credit and multiple late payments in the last year.
If you have a poor credit score lenders will be hesitant to give you a loan. You may still be eligible, but the loan won’t be as good, it will have a higher interest rate, or you’ll need a co-signer. Be sure to set up automatic payments so that you won’t miss a payment and use credit cards strategically to avoid a high debt-to-credit ratio.
What Is a Bad Credit Score?
A bad credit score is anything below 600. People with bad credit tend to be behind on credit card payments, are close to maxing out their cards, were late on payments in the last three months, or have filed bankruptcy in the last three years.
If you have a bad credit score you aren’t likely to get a loan or will have to pay a high mortgage rate or high deposit. Lenders are most likely going to choose someone with a higher score than you to lend to. Work on improving your credit score by making your payments on time and avoid maxing out any cards.
Tips to Improve Your Credit Score
Credit scores are given based on measurable criteria that you have the power to change. No matter your score, there are steps you can take to increase it or keep it steady.
Make Payments on Time
Payment history makes up 35% of your FICO score and is the most influential factor in the VantageScore as well. Making your payments on time and in full will be a key factor in improving your score.
Tip: Try setting up autopay on your payments so that you won’t miss or forget one. This is an easy way to ensure you are making payments consistently on time which will improve your score in the long run.
Manage Your Debt-to-credit Ratio
30% of your FICO credit score is based on the amount you owe and a highly influential factor of the Vantage credit score is the percent of credit limit that’s used. It’s best practice to keep your revolving balances low (under 30% of the credit limit). For example, if your credit limit is $10,000, it’s suggested to keep spending under $3,000. If your credit limit is only $5,000, keep spending less than $1,500.
Tip: If you have a low credit limit, request a higher one from your credit card issuer. If you’ve been a loyal customer, they will happily give you a higher limit.
Keep a Long Credit History
Length of credit history makes up 15% of the FICO credit score and is highly influential in the Vantage credit score as well. Maintaining a mix of accounts (credit card, auto, mortgage) over time will prove to lenders that you are dependable and able to manage your money.
Tip: Be sure to keep old accounts open and avoid opening multiple new ones. The average age decreases with each new account you open. Sometimes the best thing you can do for your credit score is to sit tight and wait for it to improve.
How to Check Your Credit Score
It’s important to know what your credit score is before applying for a loan or a new home. You can check your credit score a few different ways. One option is to check with your credit card or financial institution to see if they provide scores to their customers. Another option is to purchase your credit score directly from one of the major credit bureaus like FICO or Vantage. Last, but not least, you can use a free credit scoring site like Turbo which offers free tools like loan payment calculators.
Credit scores are based on a few key factors that you have control over. By practicing good credit habits and improving your credit you’ll be approved for more loans, have a lower mortgage, and save in the long run.