Good credit is something that everyone strives for. It helps you get loans, lines of credit and other financial opportunities. But what is a good credit score? In this article, we will break down what is a good credit score and how to get it.
What is a Credit Score?
A credit score is a number that reflects your creditworthiness and helps lenders decide whether to extend you credit. It measures the likelihood that a person will repay a debt. Lenders use these scores for loan qualifications, credit cards, rent and utilities. The higher the score, the more likely a borrower is make on-time payments. So lenders offer credit, better interest rates, lower payments, etc.
There are two different kinds of credit scores; FICO and VantageScore. Both types of scores are calculated in similar ways and give you scores from the three credit bureaus; Experian, Equifax and TransUnion. The main difference is FICO scores are industry specific scores for credit card companies and auto lenders.
What is a Good Credit Score?
Credit score range from 300 to 850. Those scores are broken down into five different categories. A good credit score is at least 670 on the FICO range and 661 on the VantageScore range. For an exceptional score, you will to have a score of at least 800 for FICO and 781 for VantageScore.
What Make a Good Credit Score?
There are five categories that make up your credit score:
Payment History
The credit bureaus record each time you make a payment on your accounts. This is the most important factor of your credit score. Lenders can see how many accounts you have, how many late payments you have and the total payments on each account.
Making on-time payments will raise your score. If you miss payments, it lowers your score and accounts could be sent to collections.
Credit Utilization
Credit utilization is calculated based on your account balances. It takes into account how much you owe and the credit limit you are using on revolving accounts. This is the combined limits and balances of all your revolving accounts. Let’s say you have a total limit of $1000 and the balance is $10 for all your accounts. Your credit utilization would be 10%. This is good. A good credit usage percentage is 30%. The best is 10% or less.
Credit Age
Credit age is the length of your credit history. The bureaus take into account the average age of all your account. For example, your oldest reporting account is 10 years old. Your credit age would be 10 years. When you close an account, the account will fall off your report and affect your credit age.
To maintain a high credit age, your oldest account open. At the bare minimum keep at least one account that is at least six months old. If you don’t use the card that often, pay a bill such as Netflix or another bill. Most credit card companies will close an account that has not been used in six months.
Credit Mix
A credit mix consists of revolving accounts and installment accounts. A revolving account is an account such as credit cards and credit lines that have a limit. Installment accounts are accounts such as a car loan, personal loan or mortgage. Having both types of accounts can help your credit score.
Credit Inquiries
There are two types of credit inquiries; hard and soft inquires. Hard inquiries are reported on your credit report. They happen when a lender looks at your credit report when you apply for credit. A hard inquiry can stay on your report for two years, but only affect your score for twelve months. Having too many inquiries can lower your score.
How Do I Check My Credit Score?
You can get your credit reports from each of the bureaus free once a year from AnnualCreditReport.com. While you can get your report, you cannot get your credit score. You can get your TransUnion and Equifax VantageScore credit scores for free from Credit Karma. In addition, you can also get your TransUnion VantageScore from WalletHub for free.
FICO scores usually have to be purchased since this is what lenders use. You can get your FICO scores through services such as MyFICO, American Express CreditSecure or IDShield.
Depending on your credit card company or bank, you may see your VantageScore or FICO score.
The Bottom Line
A good credit score opens doors to better financial opportunities. With it you can get lower interest rates, higher credit limits and easier loan approvals. Building and maintaining strong credit starts with good habits: pay your bills on time, keep your balances low and monitor your credit reports regularly. Over time, these small steps add up, helping you achieve and protect the excellent credit score that supports your financial goals and future freedom.
