What Is a Good Credit Score?

Excellent Credit Score

When it's time to make a major purchase, such as buying a car or home, you want to make sure your credit is up to par. You can get your credit score for free from sources like Credit Karma. There are two primary sources of credit scores - FICO and Vantage Score. Once you get your score, it's important to know what the numbers really mean.

Understanding Your FICO Credit Score

Lenders widely use the FICO credit score, but it isn't used exclusively. The Fair Isaac Corporation introduced the FICO score in 1989.

FICO considers a variety of factors when determining a FICO score. In general, payment history is 35%, accounts owed is 30%, your length of credit history is 15%, new credit is 10%, and credit mix is 10%. However, the formula may vary in some cases and other factors (such as income and employment) may be considered.

FICO scores range from 300 to 850. Each of the three credit agencies, Equifax, TransUnion, and Experian, will have a separate FICO score for you, which may be different. However, if you have a high score at one agency, you'll have a similarly high one at the other two.

Depending on your FICO score you'll be considered to have either excellent, good, fair, poor, or bad credit:

  • Excellent: 750 & above
  • Good: 700-749
  • Fair: 650-699
  • Poor: 550-649
  • Bad: 550 and below

FICO is the most widely used credit score, with 90% of top lenders using FICO to make lending decisions. If you have a low FICO score, you may get denied for a car loan, home loan, or other major purchase. You'll also face higher interest rates on credit that is approved.

Making Sense of VantageScore Ratings

VantageScore is a credit score created cooperatively by the three major credit bureaus. Equifax, Experian, and TransUnion worked together to create this competitor to the FICO score. The VantageScore model is managed and maintained by an independent company, VantageScore Solutions, LLC.

VantageScore numbers also range from 300 - 850. Exact details of how the score is calculated are not known, but VantageScore has released the categories they use and how important they are:

  • Payment History: Extremely influential
  • Age and Type of Credit: Highly influential
  • Percent of Credit Used: Highly influential
  • Total Balance/Debt: Moderately influential
  • Recent Credit and Inquiries: Less influential
  • Available Credit: Less influential

Like FICO, VantageScore uses consumer credit information found in the credit agencies' files. The analytical method is different, however, and you cannot translate a score from FICO into the VantageScore system or vice versa.

Unlike FICO, each of the credit agencies uses the same formula to determine VantageScore numbers. There will be one single number utilized by all three credit bureaus as long as your credit information is the same at each agency. Of course, if one credit bureau hasn't received payment information but the others have, there may be small variations.

The credit score ranges that are considered excellent, good, fair, poor, and bad are slightly different for a VantageScore:

  • Excellent: 720 & up
  • Good: 640-719
  • Fair: 550 - 639
  • Poor: 500-549
  • Very Poor: 300-499

VantageScore is newer but is still used by a significant number of lenders. Between 2014 and 2015, VantageScore credit scores were used more than 6 billion times.

Like FICO scores, if you have a low VantageScore, you may be denied for home loans or car loans, and you'll face higher interest rates on credit cards and approved loans.

How to Earn a Good Credit Score

Once you have your FICO and VantageScore and understand what it means, you'll know if your credit score is good enough to be approved for a home or other major purchase. You're also in a position to either protect your credit or work on improving it.

Remember that your credit score is meant to reflect your long-term habits. To keep your credit high, or rebuild it, there are some common-sense steps you can take:

  • Pay on time: Making on-time payments is a major factor in all credit scoring.
  • Keep credit use low: Your credit utilization should be no more than 30% of what you have available to keep your score high.
  • Pay off debt: If you have debt, pay it off as soon as you can.
  • Keep old cards open: The length of your credit history impacts your credit score.

Monitor for Changes

When you take these steps, your credit score will improve. You can check your credit score for free regularly, and you'll know whether you rate as excellent, bad, or something in between.

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