Your credit score will determine a lot about your financial life.
When looking to buy a home or other major purchase, lenders assess your “risk factor” from your FICO score.
If you have a credit score over 700, then you will get better financing rates than someone who has a score in the 600’s. In fact, the lower your credit score, the higher your interest rate. Lenders access you as a high risk, and likely to default on a loan when you have a low credit score.
So what is a good credit score? Generally speaking a 700 credit score seems to be the baseline of “good” credit.
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How Credit Scores are Calculated?
FICO, otherwise known as the Fair Isaac Company, uses five factors to determine your credit scoring. They look at the following:
• 35% Payment History
• 30% Total Amount Owed
• 15% Length of Credit History
• 10% Any new Credit
• 10% Types of Credit Utilized
Payment history makes up about 35 percent of the score. If you don’t make your payments on time or miss a few payments, then it can have a drastic effect on your score. Next, they look at the amounts owed to lenders. The more debt you have, the lower your credit score. Utilization is where they compare the amount of debt you have outstanding with your available credit.
If you use more than 30 percent of your utilization, then it will affect your score. The longer you have your credit history, the better your score as it accounts for 15 percent of the total calculation.
A 10 percent rating goes to any new credit you have obtained or applied for. Lastly, they look for diversity in credit. Those who have a mortgage, car loan and credit cards will score higher than someone who just has credit cards.
The different 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 so you 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 credit worthiness.
- Transrisk credit score range: 300-850 – The Transrisk credit score is used by TransUnion to show your credit worthiness.
- 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. Your Experian PLUS score isn’t used by lenders, it’s how Experian shows your credit worthiness.
FICO Score Range
- 750+ score score = Excellent Credit
- 700-749 credit score = Good Credit
- 640-699 credit score = Fair Credit
- 600+ credit score = Poor Credit
- Below 600 credit score = Bad Credit
What Is a Good Credit Score?
Is 700 a good credit score? If you are one of the many who ask yourself what that magic number is, then you should industry demands. Credit scores range between 300-850. Anyone who has a 300 is considered to have very poor credit. The highest credit score is 850, which is considered to be a an excellent 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’re interest rate may be slightly higher than someone with a 750 score but it’s negligible.
Why Do I Need A 700 Credit Score?
With a 700 credit score or higher you are labeled in the “prime group”. You will be able to receive credit offers that are not available to other consumers. For instance, you will get the following:
•The Best Interest Rates on A Mortgage
•Buying a Car With Zero Percent Financing
•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.
Minimum Credit Score Needed for a Mortgage
Traditionally thinking leads most people to believe they need a 620 credit score to get approved for a home loan. There are mortgage programs for people with low credit scores, such as FHA loans. FHA mortgages have a minimum 580 credit score required to qualify.
Joining Club Prime
When you have a credit score above 700, you are part of what people call “club prime.” This means that you are able to get just about whatever you want, credit wise. People in this club never use more than 30 percent of their available credit. They keep their utilization in good standing. They have at least a three to five-year credit history that is rock solid.
Most people in this club also have a nice mix of credit, not just credit cards. Finally, the club prime members don’t apply for credit regularly. They reserve inquiries on their credit report for when they have absolutely no choice.
Get a free copy of your credit report and scores
Before you can start looking at improving your credit score you’ll need to know your current credit rating. You can get a free credit report once a year on the Government website www.annualcreditreport.com.
You need to be monitoring your credit report and scores. Here are some websites that have apps which allow you to get your free credit score and get alerts anytime your report changes.
Simple things you can do to improve your credit score
Pay off your credit card balances
The higher the credit utilization ratio is on your credit card accounts, the lower your credit score will be. Try to keep your balances below at least 15% of the credit limits to ensure you’re credit score is as high as it can be.
Have someone add you as an authorized user
When you are added as an authorized user on a credit card account. The entire credit history of that account will be added to your credit report. FICO still factors authorized users into their scoring algorithm. You don’t need to have a card of your own so the risks are minimal for the account owner. This is a quick and easy way to add a few points to your credit score.
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.
Get late payments removed from your credit report
Getting a late payment removed from your credit report is easier than you may think. This first thing you should do when you have a late payment reported on your credit profile is to contact the creditor and ask if they can remove it. If you’re a long-standing account member there is a chance they may remove it as an act of goodwill. If that doesn’t work, dispute it will the credit bureaus. They have 30 days to investigate the late payment. If they can’t validate it within 30 days then it must be removed from your report by law.
FAQ about credit scores
What is an average credit score?
The Average Credit Score in the U.S. is a 687 according to a recent report from Experian.
What’s a good credit score?
There is no definition of a good credit score, generally a 700 credit score is considered good.
What is the credit score range?
The credit score range 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 a 700 credit score.
Can I get a mortgage with a bad credit score?
FHA Loans require a minimum credit score of 580 or higher with a 3.5% downpayment.
What is considered bad credit?
Most lenders consider a 600 credit score 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 just don’t do a great job. There are free DIY credit repair guides available so you can fix your credit yourself.
The Lenders Network has the largest network of mortgage lenders that specialize in home loans for borrowers with all types of credit scores. We will match you will the best lender based on your specific situation.