There are dozens and dozens of credit scores out there. That’s why it can be so confusing to determine if you have what qualifies as a good credit score.
And nowadays, there are even two categories for a “good” score. You can surpass a merely good score and have a “very good” score. Sometimes, it can be too much to digest, so allow me to add a little clarity to this situation.
I want you to forget about all those dozens of credit scores for now. We’re going to focus on the two credit scores that lenders use the most often: FICO Score 8 and VantageScore 3.0.
If you have a good credit score with one of these versions, you’ll probably come out OK with the oodles of other types of credit scores, too. Here’s what we’ll cover:
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What Is a Good FICO Score?
The FICO Score 8 is the most widely used version by all three credit bureaus, and scores range from 300 to 850. Just so you know, lenders also use the FICO Bankcard Score, which ranges from 250 to 900. But if you have a high score with FICO Score 8, you’ll most likely have a high score with the FICO Bankcard Score.
OK, I promised you clarity, so let’s focus. According to myFICO.com, here are the credit score ranges:
— Exceptional: 800+
— Very good: 740 to 799
— Good: 670 to 739
— Fair: 580 to 669
— Poor: 579 and lower
The average FICO score as of July 2020 is 711, which is solidly in the “good” category. If you have a good credit score, you are considered acceptable as a borrower.
With a score of at least 670, you’re in the “prime” lending category. You won’t get the top rates, but you’ll get decent offers.
Note that there’s also a “very good” FICO score range. If you fall within this range, 740 to 799, you have a score that’s higher than average. You have an excellent chance to get approved — and get low interest rates — when you apply for credit.
What Is a Good VantageScore?
VantageScore 3.0 ranges from 300 to 850, just like the FICO score does. According to Experian, one of the three major credit bureaus, here are the credit score ranges:
— Excellent: 750 to 850
— Good: 700 to 749
— Fair: 650 to 699
— Poor: 550 to 649
— Very poor: 300 to 549
A good VantageScore ranges from 700 to 749. Are you wondering why 670 is a good FICO score but only a fair VantageScore? It’s because the factors that are included in the scores aren’t weighed exactly the same.
How Is Your Credit Score Calculated?
Your FICO score is calculated using a variety of information that’s in your credit report. Here are the five factors that are considered:
— Payment history: 35%
— Amounts owed: 30%
— Length of credit history: 15%
— New credit: 10%
— Credit mix: 10%
FICO is clear about how each factor in a FICO score is weighted. But 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:
— 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
So, the weighting differences are the reason why a VantageScore of 700 isn’t directly comparable to a FICO score of 700.
How to Improve Your Credit Score
Now that you know what factors are important for a healthy credit score, you’re ready to be a credit score high achiever. Here are a few things you can do that will help you move up in the credit score world, regardless of which score is used.
Review your credit report for errors.
To make sure your score is an accurate portrayal of your creditworthiness, check your free credit reports regularly. Your goal is to make sure there are no errors that could lower your score. You can get your three free credit reports at AnnualCreditReport.com.
Pay your bills on time.
There isn’t a magic formula that will make your score jump from 700 to 760 in record time. But you can nudge your score in the right direction by having a history of on-time payments.
Payment history is 35% of your FICO score, so take your bill-paying activities seriously. I’m talking about paying every bill on time, whether it’s your credit card, mortgage or cellphone bill. You can’t have a sloppy payment history and attain an exceptional credit score.
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Know your credit utilization ratio.
Credit utilization ratio is the amount of credit you’ve used compared with the amount of credit you have available.
You want to pay off your balances in full and by the due date every month. Carrying a balance on credit cards leads to debt, so don’t fall into that trap. But you also need to be aware of the balance you maintain during the month.
During the monthly payment cycle, keep your credit card balances to less than 30% of your limit. For example, if you have a $3,000 credit limit, don’t have a balance of more than $900 (3,000 x .30) at any time during the month. If you want to see even faster improvement, keep your ratio to less than 10%.
And take note that you can’t cheat. Let’s say you have three credit cards and each one has a $1,000 credit limit. You have a 50% ratio on one ($500) and a 10% ratio on the other two cards ($100 balances on each card).
Here’s the math: 500+100+100=700, which translates into an excellent credit utilization ratio of 23% (700/3,000).
You might assume that because your overall ratio is less than 30% that you’re golden. But the FICO score assesses not only the total utilization ratio but also the ratios of each individual credit card.
You can’t maximize this factor of the FICO score when you have a card with a 50% ratio. There are no free lunches with credit scores!
Play with timing.
If you’re determined to “game” the system, here’s your chance. Your credit score changes every time the credit bureaus update your credit file with new information, which is reported by your lenders every month.
Find out when your credit card issuer reports to the credit bureaus. If you have a credit balance that’s larger than usual, make two payments in one month. This will keep your reported balance low, so it won’t produce a high ratio.
Maintain a mix of credit.
I’m certainly not advocating that you run out and get an installment loan to boost your score, but having an assortment of credit helps a little. For example, if you have credit cards (revolving accounts) and a personal loan (installment account), that’s better for your score than having only a few revolving credit card accounts.
But here’s a word of caution: While you want to move up into the exceptional range to get the top rates, try not to obsess over the number. Don’t check it daily, or you’ll drive yourself crazy. Just follow the practices listed above, and your score will take care of itself.
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