For a score with a range between 300 and 850, a credit score of 700 is considered good by potential lenders. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2020, the average FICO® Score☉ in the U.S. reached 710. This is a promising increase of seven points from the previous year. Higher scores can make creditors more confident that you will repay your future debts as agreed. But creditors may also set their own definitions for what they consider to be good or bad credit scores when evaluating consumers for loans and credit cards. We will look at the importance of credit scores.
In part, this depends on the types of borrowers they want to attract. Creditors may also take into account how current events could impact consumers’ credit scores. They then adjust their requirements accordingly. Some lenders create their own custom credit scoring programs. Nevertheless, the two most commonly used credit scoring models are the ones developed by FICO® and VantageScore®.
The Importance Of Credit Scores – What Is a Good FICO® Credit Score?
FICO® creates different types of consumer credit scores. There are “base” FICO® Scores that the company makes for lenders in multiple industries to use, as well as industry-specific credit scores for credit card issuers and auto lenders.
The base FICO® Scores range from 300 to 850, and FICO defines the “good” range as 670 to 739. FICO®’s industry-specific credit scores have a different range—250 to 900. However, the middle categories have the same groupings and a “good” industry-specific FICO® Score is still 670 to 739.
What Is a Good VantageScore?
VantageScore’s first two credit scoring models had ranges of 501 to 990. The two newest VantageScore credit scores (VantageScore 3.0 and 4.0) use a 300 to 850 range—the same as the base FICO® Scores. For the latest models, VantageScore defines 661 to 780 as its good range.
The Importance Of Credit Scores – What Affects Your Credit Scores?
Common factors can affect all your credit scores, and these are often split into five categories:
- Payment history: Making on-time payments on your credit accounts can help your scores. But missing payments, having an account sent to collections or filing bankruptcy could hurt your scores.
- Credit usage: How many of your accounts have balances, how much you owe and the portion of your credit limit that you’re using on revolving accounts all come into play here.
- Length of credit history: This category includes the average age of all your credit accounts, along with the age of your oldest and newest accounts.
- Types of accounts: Also called “credit mix,” this considers whether you’re managing both installment accounts (such as a car loan, personal loan or mortgage) and revolving accounts (such as credit cards and other types of credit lines). Showing that you can manage both types of accounts responsibly generally helps your scores.
- Recent activity: This considers whether you’ve recently applied for or opened new accounts.
FICO® and VantageScore take different approaches to explaining the relative importance of the categories.
What to Do if You Don’t Have a Credit Score
Credit scoring models use your credit reports to determine your score, but they can’t score reports that don’t have enough information.
For FICO® Scores, you need:
- An account that’s at least six months old
- An account that has been active in the past six months
VantageScore can score your credit report if it has at least one active account, even if the account is only a month old.
If you aren’t scorable, you may need to open a new account or add new activity to your credit report to start building credit. Often this means starting with a credit-builder loan or secured credit card, or becoming an authorized user.
