In 2018 the average FICO credit score in the US is 704.
This is the highest average credit score ever!
Credit scores have been on rise 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 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% of your credit rating. This includes past due accounts, late payments and collection accounts. A single late payment can have a drastic effect on your score.
Next, they look at the amount of available credit you’re using, called your credit utilization ratio.
Example: If you have a credit card with a $10,000 credit limit with a balance of $5,000 your credit utilization ratio is 50%, which is considered very high.
The ideal credit utilization ratio is less than 20%.
The longer you have your credit history, the better your score as it accounts for 15 percent of the total calculation.
New credit, which includes credit inquiries and new accounts you have obtained or applied for makes up 10% of your score.
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. It is important to have a good mix of installment and revolving credit accounts.
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.
What Is a Good Credit Score?
Is 700 a good credit score?
Yes. Credit scores of 700 and higher are considered good credit. 750+ scores are considered excellent credit.
Anyone who has a 300 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.
FICO Credit Score Range
- 750+ = Excellent credit score
- 700-749 = Good credit score
- 640-699 = Fair credit score
- 600+ = Poor credit score
- Below 600 = Bad credit score
Why Do I Need Good Credit?
Your credit score is a very important to achieve 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 offered.
With good credit 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 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.
You need to be monitoring your credit report and scores as well.
Here are some websites that have apps which allow you to get your free credit score and get alerts anytime your report changes.
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 on their report, 20% saw an increase in their credit score when the error was corrected by the credit reporting agency (CRA).
The means there’s a chance there could be an error on your credit report that is hurting your credit rating.
Dispute Errors on Your Credit Report
Consumers are able to 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
Simple things you can do to improve your credit score
Keep credit card balances low
Credit utilization is the amount of available credit you have used up. The lower your credit card balances the higher your score will be and vice versa.
Try to keep your credit card debt below 20% of the credit limit 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.
Pay your bills on time
Payment history is the biggest factor in determining your FICO score. 35% of your credit score is based on payment history. Missed payments can drop your score by as much as 75 points.
Most creditors nowadays has an auto-pay feature on their website. Set up your monthly payments to be drafted from your bank account automatically when they’re due. This way you will never forget to make a payment again.
Credit Score FAQ
Is 700 a good credit score?
Yes. A FICO score of 700 is above the average credit score and is considered good credit.
What is an average credit score?
The Average Credit Score in the U.S. is a 704 as of 2018.
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 just don’t do a great job.
Check out our free DIY credit repair guides to get started improving your credit.
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.