You might be surprised to hear this, but as of April 2017, the average FICO score was 700. This was the first time the average score reached 700.
But that’s not the only surprise. Would you believe that 20.7 percent of consumers actually have a credit score of more than 800? I think we can all agree that 800 falls within the excellent credit score range since FICO scores go from 300 to 850.
Don’t worry if your score isn’t more than 800, though. The bar for “excellence” begins before 800, but the number to beat varies depending on which credit score is used.
The two most common scores used are FICO Score 8 and VantageScore 3.0, so let’s take a look at each one. And don’t worry if you don’t make the cut for excellence. I’m also going to give you tips for dramatically improving your score in a short amount of time.
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FICO Score 8
If there were only one FICO score, this would be so easy to explain. But this is credit, so it has to be a little mysterious.
As I already mentioned, your generic FICO score has a range of 300 to 850. But there are also industry-specific scores that lenders use to assess risk in particular situations. For example, in auto lending, the lender might want to see the applicant’s FICO Auto Score 8, but there are five more score versions for auto lending, too.
For credit cards, issuers sometimes request FICO Bankcard Scores, and this version ranges from 250 to 900. As you can see, it’s impossible to pick one number that rules them all.
But I’m focusing on FICO Score 8 because it’s the most widely used version by all three credit bureaus. If you have a high score with this version, you most likely have a high score with the FICO Bankcard Score.
Here’s how the credit ranges shake out, according to myFICO.com:
— Exceptional: 800+
— Very good: 740 to 799
— Good: 670 to 739
— Fair: 580 to 669
— Poor: 579 and lower
Looking at the breakdown, you might think you need a score of at least 800. To be classified as “exceptional,” you do. But you don’t need an 800 FICO score to get the top loan rates.
If you have at least a 760, according to Informa Research, you’re in great shape. Maybe you’re not exceptional, but who cares? If you can get the best rates, that’s all that matters.
FICO is transparent about the variables that make up your score. Here are the five factors considered in your FICO score:
— Payment history: 35 percent
— Credit utilization: 30 percent
— Length of credit history: 15 percent
— Credit mix: 10 percent
— New credit: 10 percent
As you can see, there’s a heavy emphasis on payment history and credit utilization. Most credit score versions also include these two factors in their scores, but they’re weighted differently.
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Although most lenders use FICO scores, VantageScores have gained a little ground. Recent versions, such as VantageScore 3.0, are using the same range as FICO scores: 300 to 850.
VantageScore doesn’t give percentages for the factors involved in score calculations. Instead, it focuses on how “influential” a category might be.
Here’s how it works:
— Payment history: extremely influential
— Type and duration of credit: highly influential
— Percent of credit limit used: highly influential
— Total balances/debt: moderately influential
— Recent credit behavior and inquiries: less influential
— Available credit: less influential
But note that since the factors aren’t weighed exactly the same, a VantageScore of 750 isn’t the same as a FICO score of 750. However, you can assume that scores greater than 760 are considered excellent for both versions.
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Improving Your Credit Score
It takes six months of reported account data to generate a FICO score. With VantageScore, if you have at least one month’s worth of credit activity within the last 24 months, you can generate a score.
You don’t get to choose which score is used by a lender, but you do have the power to develop credit habits that will raise your score, regardless of the type or version that’s used. Pay attention to the following habits to boost your credit score.
Maintain a stellar payment history. Set up a realistic budget and pay all of your bills on time. I’m talking about every single bill, not just your credit card bill. A great payment history is the pathway to great credit.
Watch your credit utilization ratio. You have a credit utilization ratio, which is the amount of credit you’ve used compared with the amount of credit you have available. Keep your credit card balances under 30 percent — actually, 10 percent, if you can — and you’ll see an improvement in your score.
Stay out of debt. Start tracking your spending so you are always aware of your credit card balance. Once you are using several credit cards, having a system in place is essential. If you don’t know where every dollar is going, you will probably end up in debt.
Stop obsessing about your score. Just practice the habits listed here, and your score will improve. But do chill out about the exact number. Your credit score will change as new information is reported to the credit bureaus. So be patient and responsible credit use will fix your score.
And remember, you don’t need a perfect credit score. Get your score into the excellent credit category, and you’ll get the best deals on interest rates.
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