In 2019 the average credit score in the US was 704. This is the highest average credit score ever!
Credit scores have been rising ever since the great recession in 2008, when the average score was 686.
So what is a good credit score?
Generally speaking, most people in the lending industry consider a 700 to be a good credit score.
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How are Credit Scores Calculated?
FICO, otherwise known as the Fair Isaac Company, uses five factors to determine your credit scoring. Payment history, credit utilization ratio, age of credit accounts, having a mix of credit, new accounts, and inquiries.
How Your Credit Score is Calculated
Payment history is how well you pay your bills on time. This includes late payments and collection accounts.
The amount of available credit you're using is called your credit utilization ratio. Try to keep your credit utilization ratio below 25%.
Length of Credit
The longer your accounts stay open, the better your score will be. Don't close credit cards is possible.
Types of Credit
A mix of credit accounts such as credit cards, auto loans, mortgages will help improve your credit score.
Credit Inquiries & New Accounts
When a lenders pulls your credit it creates a hard inquiry. Multiple inquiries hurt your score count against you for 12 months.
What Is a Good Credit Score?
Credit scores of 700 and higher are considered good credit. While a credit score of 750 or higher is considered excellent credit.
Anyone with a credit score below 600 is considered to have very poor credit. The highest credit score is 850, which is a perfect credit score.
It seems reasonable that a realistic goal is to have a 700 credit score or above. In this credit score range, you can get just about anything credit-wise you need. You should get approved for just about anything and offered first tier credit interest rates.
Credit Score Range
- 750-850 = Excellent (Highest credit score is 850)
- 700-749 = Good
- 640-699 = Fair
- 600+ = Poor
- 350-600 = Bad (Lowest credit score is 350)
Things You Can do to Improve Your Credit Score
Pay down credit card debt
Your credit utilization ratio is the amount of available credit you're using; it accounts for 30% of your overall FICO score. Try to pay your balances to less than 10-15% of the card's limit.
Don't apply for credit
Do not apply for new lines of credit or loans. Too many credit inquiries can lower your credit score. You're also adding debt to your report, which can negatively affect your score.
Pay your bills on time
Your payment history accounts for 35% of your overall score. Don't miss a payment on any bills, set up auto-pay to ensure you don't miss any payments.
Dispute Innaccurate Items
You can dispute accounts you don't believe are accurate with the credit bureaus directly. They will investigate the account and must either verify it or delete it within 30 days.
Get added as an authorized user
If you know someone who has a credit card in good standing with no negative account activity ask them to add you to their account as an authorized user. The entire account history will be added to your credit profile which can increase your credit score.
Dispute negative accounts
If you have any negative accounts, such as late payments or collection accounts, you can dispute them with the credit bureaus. They have 30 days to validate the accounts, or they are required by law to remove them.
Pay for Delete
If you have any collection accounts on your credit report. You can call the collection agency and negotiate a pay for delete.
This is where you agree to pay the balance on the account, and the agency agrees to remove the account from your credit report. Make sure you get a pay for delete letter from the collection agency before paying.
Why Do I Need Good Credit?
Your credit score is critical to achieving financial security. You will qualify for just about any type of loan or credit account. Lenders will put you into credit tiers. With a good credit score, you will be in the top credit tier and receive the best interest rate.
With good credit, you will receive credit offers that are not available to other consumers. For instance, you will get the following:
- The Best Interest Rates on any loan
- Lowest APR on credit cards
- Get an auto loan with 0% Financing.
- Lowest monthly payment
- Qualify for low-interest personal loans
- Bonuses and Introductory Offers From Credit Card Companies
- Prime Rates On Auto Insurance
- Easy Screening For New Employment
Those who have a score of 700 and above will get the best mortgage rates available.
Additionally, you know all those new car financing advertisements that offer zero percent interest? Well, you will qualify for those too. You can get credit cards with introductory periods of no interest, which allows you enough time to pay off transferred debt for less.
Lastly, nearly every insurance company and job around does credit checks these days. You will qualify for the job of your dreams and be able to afford prime insurance rates to get you there safely.
Get a Free Copy of Your Credit Report and Scores
Before you can start looking at improving your credit score, you’ll need a copy of your credit report and score.
You can get a free credit report once a year on the Government website www.annualcreditreport.com.
Errors on Credit Reports are Common
You may be shocked to find out that mistakes on credit reports are common. The FTC recently published a study that showed that 1 in 5 consumers has at least one error on one of their credit reports.
And of those with errors in their report, 20% saw an increase in their credit score when the error was corrected by the credit reporting agency (CRA).
This means there’s a chance there could be an error on your credit report hurting your credit rating.
Dispute Errors on Your Credit Report
Consumers can dispute any information on their credit report they believe is inaccurate. When you file a dispute, the credit bureau has 30 days to investigate your claim and either verify the item or remove it.
Here are the phone numbers for each of the three major credit bureaus.
- Experian: 888-397-3742
- Equifax: 888-548-7878
- TransUnion: 800-916-8800
You can also file a dispute online:
- Experian: https://www.experian.com/disputes/main.html
- Equifax: https://www.equifax.com/personal/disputes/
- TransUnion: https://dispute.transunion.com
Credit Scoring Models
There are many different credit scores available to lenders, and they each develop their own credit score range.
Why is that important?
Because if you get your credit score, you need to know the credit score range you are looking at to understand where your number fits in.
Here are the credit score ranges used by major scoring models:
- FICO credit score range: 350-850 – Your FICO score by the Fair Isaac Corporation is the most used credit score lenders see. Your FICO score is how lenders measure your overall creditworthiness.
- Transrisk credit score range: 300-850 – TransUnion uses the Transrisk credit score to show your creditworthiness.
- Equifax credit score range: 280–850 – This is a score Equifax uses to show how risky you look to lenders.
- VantageScore range: 501–990 – The VantageScore is a model created by the three major credit reporting bureaus. You are likely to be given your VantageScore when you receive your credit score directly from one of the three credit bureaus.
- VantageScore 3.0 range: 300–850 – VantageScore 3.0 is scored similarly to the 2.0 model. However, the major difference is the credit score range changing from 501-990 to 300-850.
- Experian PLUS credit score range: 330-830 – The Experian PLUS Score ranges from 330 to 830. Lenders don’t use your Experian PLUS score; it’s how Experian shows your creditworthiness.
Frequently Asked Questions about Credit Scores
Is 700 a good credit score?
Yes. A FICO score of 700 is above the average credit score in America and is considered good credit.
What is an average credit score?
The Average Credit Score in the U.S. is 704 as of 2019.
What credit score do I need to buy a house?
Most mortgage loans require a 620 credit score. However, borrowers with a 580 credit score may qualify for an FHA loan with 3.5% down.
What is the highest credit score?
850. Credit score ranges from 350 to 850.
What is considered a good credit score?
There is no definition of a good credit score; generally, a 700 credit score is considered good.
What credit score do I need to buy a car?
At major dealerships, you typically need fair credit of 640 to get approved for an auto loan.
What is the credit score range?
The credit score scale will depend on which type of credit scoring model is being used. FICO is the most commonly used model; the FICO credit score range is 350-850.
What is an acceptable credit score?
A 620 credit score is typically the minimum credit score you need to get a mortgage. You can also get a car loan with a 620 credit score but expect your interest rates to be much higher than someone with an excellent credit score.
What is a good credit score to buy a house?
FHA Loans require a minimum credit score of 580 or higher with a 3.5% downpayment. You may be able to buy a house with a credit score as low as 500.
What is considered bad credit?
Most lenders consider anyone with a 600 credit score or lower to be poor credit.
Is there a way I can improve my credit score?
Yes. There are a few techniques you can use to improve your credit score.
Should I work with a credit repair company?
Some credit repair companies are quite effective at removing negative items from your credit report. However, there are a lot of credit repair companies that don’t do a great job.
Check out our free DIY credit repair guides to get started improving your credit.