What is a Good Credit Score?

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What is a Good Credit Score?


Having a good credit score can be important if you want to secure the lowest interest rates and the best rewards. However, what's considered "good" varies depending on the lender and the situation. Learn what a good score actually is and how to get one.

Do you need a perfect score to get the best rates?

While you may think you need a perfect score to get the best rates and options, this generally isn't true. And besides, having a perfect score is fairly uncommon -- only 1 percent of Americans had a perfect FICO score in 2010.

What is a 'good' credit score?

You might now be thinking, "If I don't need a perfect score to get the best rates, then what score do I need?" Unfortunately, the answer to this question isn't straightforward, since what's considered "good" depends on many factors, including:

  • What the credit score range is. Ranges vary from scoring model to scoring model, so what counts as a good score for one model may not necessarily count as a good score for another.

  • For example, VantageScore 3.0 and FICO scores usually range from 300 to 850, and a 720 is usually considered all you need to show lenders you're responsible enough to qualify for the best rates and options. Older VantageScore models, on the other hand, have a credit score range of 501 to 990. For these models, a good score is around 800.

  • What kind of credit you're looking for. Lenders often have different requirements for the best rates - it all depends on what you're looking for.

  • Certain credit cards, for example, may not require a score of 720 (out of 850), depending on their features and issuer. Other cards may require a higher credit score. Likewise, you'll typically need a higher score to get a mortgage than to get a car loan, as lenders may have more to lose if you default on the mortgage.

How do you get a 'good' credit score?

Building a good score takes time, especially if you have limited credit history or are rebuilding your credit. However, following these tips can help set you on the path to better credit.

  • Try to keep your credit card utilization rate low. Your utilization rate is calculated by dividing the amount of credit you're using by the amount of credit available to you. A high rate could tell credit agencies that you're in desperate need of credit and consequently lower your score.

  • It's generally recommended that you use no more than 30 percent of your available credit at any given time. There are several ways you can do this, including paying down your bill several times a month, spreading your purchases across multiple cards or asking your card provider for a higher credit limit.

  • Try to make your payments on time. If you pay your bills late, even one or two times, credit agencies might not think you're a reliable borrower, and your score could take a hit. Enrolling in automatic billing with your lender can help you avoid late payments, or you may be able to sign up for email or text reminders when your due date nears.

  • If you can, avoid getting derogatory marks. Accounts in collections, bankruptcies, foreclosures and liens all count as derogatory marks, which can severely damage your credit score for an extended period of time. They'll typically stay on your credit history for seven to 10 years.

  • One way to avoid derogatory marks is to only borrow as much as you're confident you can pay back. Setting a budget and sticking to it can help avoid overspending.

  • Consider keeping older accounts open. The older your credit history, the more information lenders have to determine your creditworthiness. It also shows that you have experience managing credit. Similarly, a higher number of open accounts -- of varying kinds of credit -- can help your score as well.

  • Try limiting the number of hard inquiries you get. When you apply for credit, lenders typically perform a credit check to determine your creditworthiness. This is what's known as a hard inquiry, and it can slightly lower your score.

  • Multiple hard inquiries can hurt your score even more, since it may indicate to credit agencies that you're desperate for credit. However, some scoring models count multiple hard inquiries as just one if the inquiries are made within a particular time frame.

    You can avoid hard inquiries by limiting the number of times you apply for credit. On the other hand, soft inquiries -- which usually occur when you check your own credit or when a person or company checks your credit as part of a background check -- do not ding your report, no matter how many times they're performed.

Bottom Line

A good credit score is more than just a simple figure -- it can be a range of numbers depending on what scoring model was used and the kind of credit product you're looking for. And while you don't need a perfect score to get the best deals, you'll still want your score to be as high as possible, so it's important to adopt responsible borrowing habits.

About the Author: Drew Jaffe currently attends Occidental College in Los Angeles, where you'll most likely find him cooped up in the media suite working on the latest issue of the school newspaper. When he's not working, he's most likely napping, eating burritos or hiking with friends.

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