Credit scores are a measure of how likely you are to pay back new debt. A credit score that is 690 or higher is typically considered to be good credit within the credit score ranges of 300 to 850.
Your credit scores greatly impact different areas of your life. This includes your ability to obtain a loan or credit card, the interest rate you’ll be charged, and even your chances of getting approved for a desirable apartment.
If you have a higher credit score, you can qualify for more credit options with lower interest rates. This is especially true for borrowers with scores above 750. They often have multiple choices, such as being eligible for 0% financing for cars or credit cards with 0% introductory interest rates.
It pays to know how credit scores work and what the credit score ranges are.
What is a credit score?
Your credit score is a number made up of three digits, typically ranging from 300 to 850. It reflects how likely you are to pay back borrowed money and cover your bills.
Your credit score is determined based on data collected from your credit accounts by credit-reporting agencies, which are also known as credit bureaus. The information is then compiled and included in your credit reports. The three largest credit bureaus are Equifax, Experian, and TransUnion.
You actually have multiple credit scores which are calculated by two major companies, leading to slight variations. Further details on this can be found below.
The maximum credit score possible is 850. However, attaining a “perfect” score isn’t significantly better for qualifying for loans or products than having an excellent score. So, don’t worry too much about aiming for 850 since credit scores tend to fluctuate often.
What is the difference between FICO (Fair Isaac) score and VantageScore 3.0?
The credit scoring industry is dominated by two main companies: FICO and VantageScore. The FICO score is the more famous of the two, but VantageScore is its biggest rival. Both companies use a credit score range that goes from 300 to 850.
There are various scoring formulas used by each company, with the most commonly used being VantageScore 3.0 and FICO 8.
FICO and VantageScore both use the same information, but weigh it differently. Typically, if your VantageScore is excellent, your FICO score will also be high because they tend to move together.
Can you explain the reason for the difference between my FICO score and VantageScore?
Your credit score is not a fixed number and can change every time you check it – most commonly referred to as “hard inquiries“. The score may differ based on the credit bureau that provided the data used to calculate it, or when the bureau provided it. Additionally, not all creditors report account activity to all three bureaus, meaning each of your credit reports from the bureaus may have different information.
What are good credit score ranges?
Creditors establish their own criteria regarding credit scores that they consider acceptable, but here are some general guidelines.
- Generally a credit score of 720 or higher is considered excellent.
- A credit score ranging from 690 to 719 is considered to be in the good range.
- A fair credit score would be between 630 and 689.
- A credit score of 629 or lower is considered poor.
Apart from your credit score, your income and existing debts can also affect the decision of creditors regarding the approval of your application.
What are the factors that affect your credit score?
Both FICO and VantageScore credit scoring models evaluate similar factors; however, they assign different weights to these factors.
The two most important factors for both scoring models are:
- It is important to pay bills on time to avoid costly consequences. A payment that is 30 days or more overdue will remain on your credit history for several years.
- Your credit utilization is the amount of credit you are currently using in relation to your credit limits. It is recommended to use less than 30% of your credit limits, and the lower your utilization, the better. To reduce your credit utilization, there are various measures you can take.
Although less important, it is still recommended to monitor these factors:
- Having a credit history and higher average age of your credit accounts can improve your credit score.
- Having a mix of credit types can improve your credit score. This includes having both a traditional loan and a credit card, among other types of credit.
- When did you last apply for credit? Keep in mind that applying for credit can temporarily lower your credit score due to hard inquiries on your credit report.
Here are some factors that do not have an impact on your credit score
Demographic characteristics are not taken into account when calculating credit scores.
The calculation does not take into account your race or ethnicity, sex, marital status, age, employment history (including salary, title, or employer), or location.
Ways to improve your credit scores
What is the meaning of credit score? It measures your creditworthiness, which refers to your financial behaviors predicted through various factors included in your score. These factors also suggest reliable ways to improve your score.
- Make sure to pay all bills by their due date.
- It is recommended to maintain credit card balances below 30% of the assigned limit, and even better if they can be kept lower than that.
- To maintain the average age of your accounts, it is recommended to have your old credit cards active. Additionally, it is beneficial to have a combination of credit cards and installment loans.
- To protect your credit score, it’s recommended to apply for credit at intervals rather than applying for multiple credits in a short time. Every time you apply, lenders carry out a “hard pull” on your credit which can temporarily lower your score. Multiple applications in a short span can have a more severe impact.
If you’re starting to establish your credit, or looking to improve your already established score, there are a few methods you can try. These include making multiple payments on your credit card balance each month, disputing any errors found on your credit reports, and requesting higher credit limits. Each of these methods has the potential to raise your score.
Start your journey to better credit today!
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What are the steps to check and keep track of my credit scores?
Checking your own credit score does not harm your credit score, and it can give you an idea of what a lender may see.
A way to obtain a free credit score is by visiting a website like IdentityIQ. There, you can find your TransUnion VantageScore 3.0 or FICO Scores. Numerous personal banking apps also offer this service, allowing you to regularly check your credit score when signing in to pay bills.
To effectively monitor your credit, it is crucial to consistently use the same credit score. Switching between different scores would be similar to checking your weight on various scales or using different units of measurement. Therefore, select a particular credit score and devise a plan to track any changes. Any alterations detected by that score will likely appear in others as well.
It’s important to keep in mind that scores, just like weight, can go up and down. As long as you maintain a healthy range, these fluctuations shouldn’t affect your financial health.
To safeguard your credit, consider freezing your credit with every credit bureau. This won’t prevent you from utilizing credit cards, but it will deter others from opening credit accounts under your name as your personal information will be inaccessible. Freezing your credit is quick and free of cost, and it provides significant security benefits for your finances.