Confused about what a “good credit score” truly means? That three-digit number between 300 and 850 has a big role in determining how much you might pay to access loans for a variety of things like a home, car, and consumer purchases.
Banks and lenders use credit score tiers to determine their fees, interest rates, and repayment terms across loans and credit cards. You may see these referred to as prime and subprime scores.
In short, the lower your credit score, the more you’ll pay to access these loans. If you have a good credit score, meaning your score is high, the lower these institutions will charge for the same loan product.
So, what is a good credit score, anyway?
What is a good credit score?
Ranges vary based on the scoring model and how the score is being used.
That said, anything above 670 (for FICO®) or above 661 (for VantageScore) is considered to be a “good” score. In some regions and for some purposes, anything above 600 is acceptable.
This number is considered a good credit score because it demonstrates to the lender that you know how to borrow money and pay it back consistently. A score of 625, for instance, might still reflect a new line of credit and a few late payments, but it shows nothing egregious that would make the lender doubt that you’ll be able to pay back your debts.
The highest credit score you can obtain is 850, which is extremely difficult to reach. Many lenders will consider 750 to be close enough to excellent credit that those with this score will receive the same benefits offered to people with excellent credit.
And what makes a credit score bad?
On the flip side, credit bureaus often consider a “bad score” to be one with a “fair” or “poor” credit.
Fair scores are not necessarily bad but require some improvement to see the benefits that those with higher credit receive. Fair scores may include anything between 601-600 (for VantageScore) or 580-669 (for FICO®). Below those ranges bring you into the lowest tier of credit, which can keep you from having access to borrow altogether.
Lower scores may result from never borrowing before or from negative marks on previous occasions. These incidents include late payments, over-borrowing, balances sent to collections, or bankruptcy. Although you can improve negative marks over time, most will linger on your credit report for several years.
If you’ve never had an open line of credit but notice you have a bad score when you go to open your first line of credit, it may be a sign of fraud or identity theft. A bad score can result from someone using your social security number or identification to open credit in your name. Cases of identity theft are common, and it is important to report them immediately so that you are not held responsible for repaying a loan you never borrowed. If you think someone fraudulently used your identity to access credit, report the issue to the Federal Trade Commission.
Maintaining a good score
If you already have a good score, maintaining it should be easy – just keep doing what you’re doing:
- Keep several lines of credit open at a time, but aim not to exceed 5-6.
- If you have a card with a long credit history, keep that one open because the longer the lending relationship, the better it reflects on your score.
- Continue to pay all your bills on time and in full. Having a payment arrive later than 30 days will negatively affect your score.
Becoming a co-signer on a loan for someone else is another risk factor to consider when trying to maintain a good score. While having a cosigner can be a good way to help someone build credit, it can also open up risk to you as the cosigner.
If you have a family member or friend who doesn’t qualify for a loan or credit card on their own, the lender or bank will ask them to find another person who will also assume responsibility for the loan. If you have good credit and are considering becoming a cosigner, ensure that you are willing to take on the risk of consigning. While you might trust the individual, if anything goes wrong, you will be held responsible for the total amount of the loan and their poor payment history will negatively impact your credit score.
Last, be sure to monitor your credit often. You can get a copy of your free credit report each year at www.annualcreditreport.com. If you’re already using a credit card, check out the benefits. Many cards and banks offer access to free, anytime credit reporting sites. Doing so is a great way to monitor for fraud, stay on top of your credit score, and ensure you’re heading in the right direction.
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