Good Credit Scores: FICO & VantageScore
Perfection is a lofty goal, but it’s not always realistic – or necessary.
So it is with an individual’s credit score, that gnarly number that banks and lenders rely on when granting mortgages and loans. It’d be great to have the perfect credit score (which happens to be 850), but it’s not necessary.
When it comes to credit, very good is good enough. Being diligent about paying bills on time and being faithful about paying bills on time every month will get you where you need to be – which is at a score of 760 or higher.
Credit scores are a quick assessment of a borrower’s track record on paying bills, and help lenders gauge how trustworthy a borrower will be at repaying money. The better the credit report, the higher the credit score. Originally designed to provide lenders quick insight into a borrower’s payment record, credit reports now are used by utility companies, landlords, cellphone carriers and even insurance companies to financially evaluate customers.
The scored is calculated on a range from 300 to 850, and the nation’s average is 703. Less than 2% of consumers hit the perfect 850. The remaining 98% of the nation fills in the variety of credit score ranges
About 25% are in the 740-799 range, which lenders consider worthy of the best loan terms and interest rates. Another 21% are good (670-739) and receive slightly less favorable loan terms and interest rates.
The key is getting from good to very good, which experts say is 760 or above. Because in the real world, a score of 760 should earn borrowers the same benefits (lower interest rate, better credit terms) as those above 800.
WalletHub posits that a credit score of 760 “is not a good credit score; it’s an excellent one.” And SmartAsset reports that a credit score of 760 or higher should lead to the lowest interest rates on a loan.
John Ulzheimer, who has spent a career working in credit rating, told CNBC Select that the best interest rates for car loans are at 720 and above and for mortgages 760 and above. Jim Droske of Illinois Credit Services said that those above 760 or are “getting the best you can get.”
“You’re already hitting that pinnacle of what lenders care about,” Droske told CNBC.
He adds that in practical terms, a perfect score of 850 is no better than an “imperfect” 760.
So while we can still strive for perfection, be proud if that score is 760. And keep in mind the words of Tolstoy: “If you look for perfection, you’ll never be content.”
What Is a Good FICO Score?
A good FICO score is 700 or higher; 760 is considered very good, a score above 800 is exceptional.
|FICO Scores by the Numbers|
|800-850||Exceptional||21%||Great credit history so no problem borrowing at best rates and conditions.|
|740-799||Excellent||25%||In most cases, best terms still available as long as payment history is solid.|
|670-739||Good||21%||Acceptable score, though loan interest rates will be slightly higher.|
|580-639||Fair||17%||Being denied loan is possible. Paying higher rates is probable.|
|300-579||Poor||16%||Finding credit at anything near affordable rates is almost impossible.|
FICO, the Fair Isaac Corporation, is the major player in the credit-scoring industry. Founded by gentlemen named Bill Fair and Earl Isaac in 1956, FICO is actually an analytics company that relies on vast amounts of data to answer a simple question: Is a person financially reliable? It has been providing FICO scores that assess credit since 1989.
The company can produce more than 50 different versions of a credit score, each focused on the industry seeking the information. In addition, FICO will generate a different score for the type of loan requested, be it a car loan, mortgage or credit card. Because of the company’s track record and reliability, 90% of lenders rely on the FICO score.
What Is a Good Vantage Score?
VantageScore is a collaboration of the three major credit bureaus – Equifax, TransUnion and Experian. It applies slightly different analysis to credit history, and a consumer can have different ratings from FICO and VantageScore.
VantageScore can be a tougher grader. FICO rates 67% of Americans as good or better, VantageScore 61%.
A good VantageScore is above 660. A score above 780 is excellent.
|VantageScore by the Numbers|
|781-850||Excellent||23%||Should receive best terms and conditions for any type of loan or credit card.|
|661-780||Very Good||38%||Should be approved for any type of loan with slightly less favorable terms.|
|601-660||Fair||13%||A dividing line where approval comes, but with much higher interest rates.|
|500-600||Poor||21%||Approval questionable; rates much higher; tough decision for both sides.|
|300-499||Very Poor||5%||Denial almost a certainty. If approved, rates so high it's not worth borrowing.|
Benefits of a Good Credit Score
It’s not worthwhile it to obsess over a credit score range between 760 and 800, but there’s no doubt that there are benefits to having a good credit score when seeking a loan or mortgage.
The main benefits include:
- Lower interest rates on credit cards and loans
- Faster approval
- More leverage when trying to negotiate a better rate
- Higher credit limits
- Faster approval for rental homes or apartments
- Better car insurance rates
- Obtaining a cell phone contract or utilities without a security deposit.
The greatest benefit to a good credit score: It’s less expensive to borrow money, which over the span of decades will save thousands of dollars.
What Factors Affect Credit Scores?
FICO sorts your credit performance into five categories, each individually weighted. Knowing what’s what will help the consumer make improvements. Those categories are:
- Payment history
- Utilization of credit
- Length of credit history
- Account mix
- New credit
One vital tip: Putting bills on automatic payment is virtually a guaranteed way to help your credit score. Assuming you have enough in the bank to pay bill this way (and in times of COVID that can be a challenge), automatic payment is not only the easiest way to pay a bill, it is one of the easiest ways to build good credit.
Payment history is the No. 1 factor in assessing credit scores. Those who pay their bills in full and on time rank the highest. This factor accounts for 35% of a credit score. Considerations include how many accounts are paid on time, the frequency and severity of missed payments and bankruptcies or collections on unpaid debt. FICO believes that past performance predicts future results. Which is why setting up automatic payments for credit cards is so beneficial. Same is true for your mortgage, rent, car loan or utility bills. If you put them all on automatic payments, you definitely improve your credit score.
Utilization of Credit
Three convoluted words that mean: How much of your available credit have you borrowed? Borrowers can be perfect in on-time payments but still get dinged if they’ve maxed out on a few or many cards. Key factor here is what percentage of your available credit is being used. The rating services like that number to be under 30%. So, those who use $1,000 of $10,000 available on a credit card will score better than those who borrow $9,800 or even max out at $10,000. Total amount of money owed also factors into the equation. Utilization of credit is the second highest consideration in a credit score -- 30%.
Length of Credit History
Length of credit history matters because the longer you’ve been paying off debt in a meaningful and steady way, the more responsible you have been. Borrowers who have proven they are reliable over time will benefit in this category, which accounts for 15% of a score. Because it has a lower weight, not having a long credit history will not be a huge drag on credit score or the ability to build credit.
Because lenders like to see a variety of successfully managed credit experiences, account mix is 10% of a FICO score. Are you loaded up in only one area, like credit cards? Or do you have experience managing installment loans, retail accounts, and a mortgage?
Opening several new accounts does not necessarily mean you will establish good credit quickly. Instead, it shows risk, and companies do not reward that approach. Even applying for new credit will show on a credit history, so avoid applying or opening several accounts in a short time. Established credit is rewarded. Signing up for a new card every few months is not.
How Factors Influence FICO Score/VantageScore
Both FICO and VantageScore assess the same general risk factors: Payment history, length of credit, types of credit, credit usage and recent credit inquiries. The difference comes in how the data is collected and emphasized.
FICO requires at least six months of credit history with at least one account reported to one of the three credit reporting agencies within the last six months. VantageScore requires one month of history and one account reported within the last two years.
Because VantageScore allows a short history and longer period for reporting, it can issue credit ratings to consumers who would not qualify for a FICO score. Thus, those with a short credit history may prefer to rely on VantageScore.
FICO provides one advantage to consumers by ignoring all collections under $100 as well as accounts where debts have been paid. VantageScore only ignores paid collections, no matter the original amount. If there is a collection fee in your name for $48, it will show in VantageScore.
How to Improve Your Credit Score
There is no reason to despair if you feel your credit score is low. Today’s problem with a low score can be tomorrow’s solution to a new mortgage. The key is having a plan along with commitment, discipline and time.
The first step is to check your own credit reports. A web site like AnnualCreditReport.com allows consumers to get a free copy for review from each of the three reporting agencies: Experian, Equifax and TransUnion. Mistakes don’t happen often, but they do happen. Check each for accuracy. Agencies are required to correct anything that is incorrect.
Pay on Time
Get caught up. Leave nothing in arrears. Maybe this means juggling the budget or taking on an additional stream of income for a while. Gig economy opportunities are everywhere. Delivering food for Uber Eats or DoorDash for six hours a week can provide extra cash to pay down debt.
Commit to paying bills in a timely fashion. Set up automatic payments and be committed to a budget-trimming, income-enhancing scheme. The relief and pride in eliminating debt is its own reward.
It’s vital to remember that payment history is the single most critical factor in a credit score. Get this part right, and by this time next year, you’ll be well down the road to a score you can be proud of.
Minimize Credit Use
Don’t overuse credit cards. Keep in mind that a credit card is merely delaying the bill, which will come due.
Attack debt. Review the proven strategies for paying off balances that make the best sense. Draw up a budget, make a plan and stick to it.
Avoid closing old credit card accounts. It may seem prudent, but FICO considers this a loss of available credit, which affects the credit score.
Connect with a Credit Counselor
These first two are do-it-yourself options, and they are, unquestionably, admirable. But their success relies on discipline, commitment, resolve, and resistance to splurging. Planning to start an exercise regime seems great – until the muscles ache on Day 3in ways never expected.
One alternative is to work with a nonprofit credit counseling agency like InCharge Debt Solutions that can suggest specific ideas to reduce debt and build credit.
Credit counseling can negotiate better terms with your creditors and get you into a program that reduces and ultimately eliminates your credit card debt. You make a single payment (often lower than your combined existing minimum payments) to the debt-relief agency, and it makes certain your creditors are paid on time. By the end of the program — three to five years — the debt burden is eliminated.
In the end — actually, long before the end — you’ll have a FICO score anyone could fall in love with.
Credit Score FAQs
Various scenarios can affect your credit score. Among them are the implications of marriage and the implications of joint accounts
Checking a credit score has become easier, and is important. Though the three credit bureaus are not required to provide the score for free, many banks or credit card companies provide the service. Experian will provide a free FICO score. Several web sites offer the score for free, but read the details before committing.
Federal law allows consumers to obtain free credit reports from the three major credit bureaus once per year. It’s wise to check the report at least that often. Consumers can pull one report each year from each of the three credit bureaus. Checking one in January, one in May and one in September can provide a glimpse into how scores are changing, or how they’re affected by a commitment to reduce debt.
Reports should be studied. Errors happen. A report may list a missed payment that you can prove was not missed. Consumers can report the error to the bureau along with the documentation to prove the mistake and have the error corrected.
The timeframe depends on the number of disputed mistakes. Credit bureaus have 30 days from the date they are notified to verify the information.
A credit score is a measure of how consumers handle debt. It is not impacted by wealth or net worth. Savings, IRAs, home value … they are not considerations. Nor are race, religion, nationality, gender, marital status, age, political affiliation, job, employment history, education and total assets.
No. A credit score details credit activity and situation. How have you paid your bills and how much do you owe at the present moment? A credit report includes personal information that includes bankruptcies and liens as well as credit accounts and history.
One way is to check your savings balance. If the money is there to cover a large purchase, buy the stove or TV or computer you need with a credit card, then pay the balance immediately. Paying a balance past due to make it current or bring it to zero is another possible option.
It helps because it’s a record of your ability and willingness to meet debt. Not having a credit card, though, does not mean you won’t have a good credit score. Some people do not believe in owning credit cards, and instead build a credit rating via loans (school, car, mortgage).
One way is to be added as an authorized user on a parent’s or partner’s credit card. This allows the user to start to build credit before he or she obtains his or her own card.
It can, if one of the two individuals on the account has poor credit. As soon as you open an account together, you’ll be ‘co-scored’ and your credit ratings will become linked. Making joint accounts is not always or automatically the wisest approach.
Adults enter a marriage with their own credit history. If you apply for a loan together, the lender will consider the credit history and score of both parties. Only in the community property states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin do lenders look at the credit reports of both parties when one person applies for credit. But, in all states, debt brought into the marriage belongs to the individual. A spouse cannot be held responsible for debt incurred by his or her partner prior to the marriage.
A partner with a poor credit score will not bring his or her spouse’s score down. But a partner with a high score can help the spouse raise his or her score over time.
Marriage has no effect on your credit reports or credit scores because the national credit bureaus do not include marital status in their records. There is no such thing as a couple's credit report or score.
Couples need to understand, though, that their individual credit behavior can affect both partners.
About The Author
Pat McManamon has been a journalist for more than 25 years. His experience has mainly been in sports, but the world of athletics requires knowledge of business and economics. He also can balance a checkbook and keep track of investments with Quicken quite adeptly. McManamon’s experience includes covering the NFL for ESPN, LeBron James for the Akron Beacon Journal and AOL Fanhouse, and the Florida Gators and Miami Hurricanes for the Palm Beach Post.
- Gravier, E. (2020, July 7) 1.6% of Americans have a perfect 850 credit score, but here’s the only one that matters, according to experts. Retrieved from https://www.cnbc.com/select/what-credit-score-should-you-have/
- N.A. (ND) 760 Credit Score: Is it Good or Bad? Retrieved from https://www.experian.com/blogs/ask-experian/credit-education/score-basics/760-credit-score/
- Kiernan, J. (ND) 760 Credit Score. Is 760 a good credit score? 760 credit scores explained. Learn how to improve your credit score to 760 & beyond. Retrieved from https://wallethub.com/credit-score-range/760-credit-score/
- Detweiler, G. (2019, June 10) What is a good credit score? Retrieved from https://www.credit.com/credit-scores/what-is-a-good-credit-score/
- Irby, L (2020, August 3) What Is a Good Credit Score? Retrieved from https://www.thebalance.com/what-is-a-good-credit-score-960505
- N.A. (ND) What credit score is needed to buy a house? Retrieved from https://smartasset.com/mortgage/what-credit-score-is-needed-to-buy-a-house
- Latham, S. (2020, June 16) What Is a Good Credit Score Range? Retrieved from https://www.thesimpledollar.com/credit/credit-score/what-is-a-good-credit-score/
- Paperno, B. (2017, Dec. 21) FICO vs VantageScore: 5 differences you should understand. Retrieved from https://www.usatoday.com/story/money/personalfinance/2017/12/21/fico-vs-vantagescore-5-differences-you-should-understand/964591001/
- Stolda, S. (2019, Sept. 6) What is the Average Credit Score in the U.S.? Retrieved from https://www.experian.com/blogs/ask-experian/what-is-the-average-credit-score-in-the-u-s/