What Is a Good Credit Score?

Good credit scores can open doors, helping you to qualify for affordable rates on new loans, get approval for an apartment rental, and be able to borrow money again in the future. 

Credit scores take into account how you’ve handled credit accounts in the past. It’s what lenders use to determine whether you’re a good candidate for further credit. And although some financial teachers believe you should avoid debt at all costs, the reality is that a good credit score can smooth out your path in many ways.

How Credit Scores Are Calculated

Credit scores are calculated based on information reported by the three primary credit bureaus: Equifax, Experian, and TransUnion. The credit bureaus' reports generally show whether you pay your debts on time and use credit responsibly. 

Most credit scores are FICO scores. FICO, or Fair Isaac Corporation, refers back to the earliest methods of credit scoring models, and according to FICO, 90% of top lenders refer to FICO scores when making lending decisions. These banks and other lenders look at FICO scores to determine whether a borrower is likely to repay a loan.

VantageScore is another of the most common credit scores. The company was created in 2006 and aims to allow millions more people to have a credit score. 

What Defines a Strong Credit Score?

Though a perfect financial score of 850 is at the top of various rating scales, it's not essential for financial success. When considering loans such as car loans and mortgages, aiming for a strong financial profile increases the likelihood of obtaining approval and securing lower interest rates.

A good credit score usually falls in the upper 600s and lower 700s, or between 680 and 739. There are ranges generally accepted as “excellent,” “good/fair,” and “poor.” Obviously, when you’re applying for a new loan or credit card, lenders want to see credit scores on the higher end of the spectrum. 

Experian, one of the three primary credit reporting agencies, offers the following FICO credit score ranges, which correspond fairly closely to other sources:

• Exceptional: 800-850
• Very Good: 740-799
• Good: 670-739
• Fair: 580-669
• Poor: 300-579

If you’re using your VantageScore, Experian notes that the good scores range from 661-780. 

What Are the Benefits of a Good Credit Score?

When you approach borrowing conscientiously, you’re demonstrating to potential lenders that you are in charge of your money and can handle repayment of any loans. Even if you don’t want to take out a lot of debt, it can be beneficial to put some bills on a credit card that you pay off religiously each month. Improving a poor credit score will save you money in the long run. 

A robust financial standing offers a clear advantage in securing funding for significant acquisitions. Not everyone can afford to pay in cash for their next vehicle or home. For entrepreneurs aiming to establish or expand a business, their financial profile influences the potential to secure a business loan.

Maintaining an excellent financial profile is crucial for securing favorable treatment from lenders, resulting in lower interest rates and improved terms. Even small percentage variations can significantly impact expenses on substantial purchases.

For example, here’s how the cost differs for a 30-year, $250,000 home loan at 6% APR versus 7% and 8%. 

• 6% APR: Monthly payment $1,498.88. Total interest: $289,595.47.
• 7% APR: Monthly payment $1,663.26. Total interest: $348,772.25.
• 8% APR: Monthly payment $1,834.41. Total interest: $410,388.12. 

Every bit of reduction in interest can save you thousands of dollars over the loan term. 

However, a good credit score doesn’t just serve you in taking on more debt. Landlords and utility companies often check credit scores before approval, so it’s not only for those making a large purchase. 

Related: How do credit scores work (and why do they matter so much) 

What Affects Your Credit Score?

Your credit score is impacted by several factors. Making loan payments on time and keeping your credit utilization (amount owed compared to the total available credit) below 30% are your top two priorities when aiming to build a good credit score. 

FICO, the credit score used by the majority of lenders to determine creditworthiness, is based on five factors in the following approximate weighted percentages:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10%

VantageScore ratings also fall between 300 and 850, and they’re calculated based on similar factors. 

Focus on not taking out too much debt, and always making payments on time, and you’re on track to build a good credit score. 

Related: How to increase your credit score

What Is a Good Credit Score to Buy a House?

To secure a mortgage, an excellent credit score isn't obligatory; qualifying doesn't rely solely on credit scores. However, a favorable financial history is typically necessary, with specific numerical requirements varying. Traditional home loans commonly accept scores of approximately 620 and higher.

For USDA loans, lenders usually require a credit score of 640. FHA loans consider applicants with a credit score of 580 and above, requiring a 3.5% down payment. Those with a score of 500 to 579 need a 10% down payment. Keep in mind that being significantly above the minimum credit score for a loan qualifies you for lower interest rates and more favorable lending terms.

If you’re dealing with a lower credit score, you may be able to secure a mortgage by making a larger down payment. 

What Is a Good Credit Score to Get a Credit Card?

Almost anyone can get a credit card, regardless of poor credit, though options are more limited. Card issuers will assess your financial background before granting approval

A strong financial standing unlocks additional opportunities for card acceptance, potentially leading to more favorable terms such as lower APRs or increased spending limits. You also need higher credit scores to qualify for most premium credit cards or those with attractive rewards programs. 

Per American Express, those with credit scores in the “Good” to “Very good” ranges are most likely to qualify for cards with an introductory 0% APR or no annual fee. Remember, those are credit scores in the upper 600s and 700s. 

Here are the best credit cards for beginners.

What Is a Good Credit Score to Buy a Car?

Buying a car, unless you’re paying cash up front, requires a good credit score. That helps your auto lender determine the interest rate they can offer you for the life of the loan. 

Be prepared to pay higher interest rates if your credit isn’t in the good range yet (670 and above). Postponing a car loan to improve your profile for six months or more may result in significant interest savings

FAQs

How long does it take to get a good credit score?

Building up your credit takes time. Merely making your loan payments on time and in full once won’t significantly bump your credit score. However, if you can do so for a longer period of time, such as six months to a year, and keep your credit card balances and other debts low, that shows a pattern of responsible borrowing and repayment. 

The farther you have to go to attain good credit status, the longer it will take. If your credit is currently “Fair,” you can likely get into the good range quickly, but expect to put in more time if moving from a “Poor” credit score.

If you’re starting from scratch (zero credit history), the same rules apply. Demonstrate that you’re a good credit risk by paying debts on time, and within a few months you should start to see your credit score increase.

How do you get an 800 credit score?

Since 850 is a perfect credit score, 800 is somewhat of a gold standard for individuals looking to be a rock stars. The criteria are fairly straightforward: make all of your loan payments on time and maintain a low credit utilization ratio. 

The Consumer Financial Protection Bureau (CFPB) recommends borrowing no more than 30% of your maximum allowable credit at any time. But to get excellent credit scores, aim for less. FICO explains that the average person with “exceptional” credit has a credit utilization ratio of only 7%. 

Many years of steady, responsible debt payments while avoiding negative marks or overextending it should eventually lead you toward that 800 benchmark.

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