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There’s a lot of wiggle room in what is considered a good credit score, ranging from 300 to 850, but if your score is 700 or over, you’re considered doing fairly well. Anything over 800 is viewed as excellent. It’s possible to get an 850, but very difficult.

It’s worth noting that most consumers’ credit scores fall in the 600-750 range, although 2020 saw a slight bump in  the average FICO® Score☉, up seven points to an average score of 710. (1)

Which One Does My Lender Look At?

First, you need to know there are two kinds, and the way they’re figured is different. For example, a FICO score between 800 and 850 is viewed as excellent,  VantageScore  the second credit bureau, regards 661 or higher as very good, and anything over 780 as excellent. (2)

On the other hand, while FICO views scores of 670 or below as fair to poor, VantageScore views scores of 660 or below as fair, poor, or very poor.

So while there are other credit scores out there, and some lenders may use their own scoring models, FICO and VantageScore are the most commonly used. 

Most lenders don’t seem to prefer one scoring model over the other, but it’s likely a lender will look at only one scoring institution. (3)

FICO states that some 90% of all lenders use their scoring system when determining how risky a loan may be, but VantageScore reports that in a one-year period, some 12.3 billion of their scores were used.

It’s worth noting that VantageScore was developed by the three major credit bureaus — Experian, Equifax, and TransUnion — to offer a scoring model that’s more consistent than FICO, and it’s more helpful when evaluating the credit worthiness of someone who has a shorter credit history.

How Is It Decided?

As we learned, FICO and VantageScore each have their own criteria for credit score models, but here are the biggest determining factors from each:
FICO

Your payment history. This is the big one, worth about 35% of your final grade. If you’ve made all of your previous payments on time, this is going to help. It also looks at how many times you’ve made late payments or missed one altogether, how many accounts have you been late or delinquent on, and the total number of times you were late. 

How much do you still owe? This adds your outstanding credit balance and loans together and compares them to your total credit limit. Are your cards close to maxed out? This is known as a credit utilization score. A good score would be 30% or less, but 10% or less is considered ideal. This has about 30% impact on determining your score.

Length of credit history, or how long you’ve had credit. 

New credit. Have you applied for any credit cards or opened any new accounts lately? Every time you apply for a new card or loan, whether you get it or not, your potential lender looks at your credit score. This is called a hard inquiry. Unfortunately, for every hard inquiry into your credit score, it drops your rating by 5-10 points, and this will stay on your record for up to a year.

Credit mix, or how many cards, installment loans, finance company accounts, mortgage, etc. you hold. 

VantageScore

As with FICO, your payment history is a big deciding factor.

Also a big factor, the type of credit, the length of your credit history, and the percentage of your credit line used.

What’s your total amount of debt between credit cards, loans, and other accounts?

Less of a factor than with FICO, how many credit inquiries have you made? (4)

What is My Score Used For?

Short answer, a good credit score can help you get better terms on that loan you’re applying for. It may even be the deciding factor on whether you get the loan or not. But generally speaking, the better your credit score, the lower your APR interest on that loan is going to be. 

And a good credit score can also mean the difference whether the landlord will rent you an apartment. Some employers may look at your credit score before deciding if you’re going to get hired or promoted. Even insurance companies use your score to set the rates on your home, auto, and life insurance premiums.

You may be surprised to learn that paying off a loan, for instance, can lower your credit score. Or paying off your credit cards and then deciding not to use them again. It’s a good idea to stay out of debt, but if the credit scoring agencies don’t see some monthly activity, you’re likely to get a lower score. 

What are the Three Fast Ways to Improve?

It sounds obvious, but make your payments on time, and try to pay more than the minimum when you can. A single late payment can have a negative impact on your score, and it can stay on your report for up to seven years. If you think you’re going to be late, contact your creditor at once and try to work something out before the damage is done.

Keep your credit card balances low, also known as your  utilization rate. You may not be able to pay them off, but certainly do your best to pay them down well below your credit line.

Only apply for credit when you absolutely need it, not when you’ve seen something shiny and new you want. Remember, every new application you make creates a  hard inquiry. And, while this in itself is minimal, enough of them in a short enough period of time can have a collective negative impact on your score. (5)

One More Step You Can Take

It’s possible you don’t have a credit score because you’ve never had a credit card before. It would be worth opening a new account, even if the APR on it isn’t very favorable. Then, use that card for a recurring monthly payment, like a subscription to a streaming service, and pay it off in full each month. 

Experian is offering a boost to your score by giving you credit for the utility and mobile phone bills you’re already paying regularly. Until now, those payments had no impact on your score. Learn more — and see your FICO score for free — by visiting this website: Experian Boost – Improve Your Credit Scores Instantly for Free

SOURCES:
1. DeNicola, Louis. “What Is a Good Credit Score?” Experian, 3 May 2021, www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/.
2. Detweiler, Gerri. “What Is a Good Credit Score?” Credit.com, 2021, www.credit.com/credit-scores/what-is-a-good-credit-score/.
3. Ibid
4. White, Alexandria. “What Is a Good Credit Score and How to Get One.” CNBC, 19 Mar. 2021, www.cnbc.com/select/what-is-a-good-credit-score/.
5. DeNicola, Louis. “What Is a Good Credit Score?” Experian, 3 May 2021, www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/.

Written by Stan Timmons

Stan is a journalist, novelist, illustrator, magazine writer and comic book creator. With a lifetime of being a freelance creator, he’s learned a thing or two about saving money, building credit and living smart.

The information provided is for informational purposes only and is not a substitute for professional financial advice. You should consult a credit counseling professional concerning the information provided and what should work best in your financial situation. And any action on your part in response to the information provided is at your discretion.

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