By Nathan Birt, Kimberly Rotter and Lindsay Van Someren
Everyone wants a good credit score, and for good reason: life becomes a whole lot cheaper and easier when you have a good credit score, especially if you want to buy any big-ticket items like a home or a car. If you’re planning on using credit anytime in the future, it’s important to check your credit score well in advance so you have plenty of time to improve your credit score.
What is a good credit score? Sometimes it isn’t so obvious. It’s not like we’re born knowing the magic number range that counts. To make things even more confusing, there isn’t one single range of possible credit scores: what’s considered a “good” score depends on many factors, including the scoring model used to calculate it. Each credit-active consumer has dozens of credit scores. Even if you were to figure them all out, each credit score relies on data that’s updated on a regular basis, so it constantly changes. It’s enough to drive anyone mad!
Figuring out if you have good credit or not can get pretty complicated if you’re not sure what you’re doing, but luckily, it doesn’t have to be so difficult. If you know a couple of basic things about how credit scores are calculated, it’s easy to find out if you have good credit.
What is considered a good credit score in each bureau?
It’s the creditors, not the bureaus, who decide what credit score will qualify for lending products and specific terms, and what credit score will not. That said, the cutoff points for most creditors are usually pretty similar. Here’s an example showing the FICO credit score range that might be considered by a lender to be excellent, and the ranges for good, fair, poor and bad:
- Elite/Excellent: 740 and higher
- Prime/Good: 700—739
- Preferred/Fair: 650-699
- Standard/Poor: 600-649
- Sub-prime/Bad: 599 and lower
For VantageScores (the most current scoring model), the ranges break down as follows:
- A 751-850
- B 701-750
- C 641-700
- D 581-640
- F 300-580
Although dozens of legitimate credit reporting companies operate in the U.S., there are three companies (“credit bureaus”) that provide virtually all consumer credit reports. They are Equifax, Experian and TransUnion. Each company maintains a file on all consumers in the U.S. for whom credit-related data has been reported.
How the bureaus calculate your credit score
Credit reports can only show the data that is reported to them. Some creditors report to all three credit bureaus, while others may only report to one or two. That’s why your reports may look different.
Reported data includes personal information (name, address, social security number, employers), credit accounts (loans, credit cards, and so on), public financial records (bankruptcies, judgments, tax liens), collection accounts (any account that has been reported as being in default, and inquiries (anytime someone checks your credit).
Other details you might find on your credit report include your payment history, whether accounts are open or closed, the amount of credit available to you, and the balances you owe. For some consumers, rent and utility bill payment history is also included.
Credit scores can vary, but they’re always calculated using two things: credit reports (compiled independently by each credit bureau) and credit scoring models.
Don’t get your credit score mixed up with your credit report
Credit reports are lists of your previous credit history, and are created separately by each of the three main credit bureaus. Each credit bureau collects the same basic information from creditors like amount owed, type of debt, date paid off, and so on. Creditors voluntarily report data to the credit bureaus, but they’re not legally obligated to do so to all three—or any at all, if they choose.
Here is what you might expect if you pulled your credit report.
Each bureau calculates FICO scores, VantageScores and other scores. The scores differ because the information in your file at one bureau may not match the information in your file at the others. If your credit history is strong, you should have good credit scores across the board, even though they might differ by a few points.
Also, scoring models have changed over the years. If one lender pulls your FICO 8 score and another lender pulls your VantageScore 2.0, the numbers will differ because different algorithms were used to calculate them. A lender pulling your FICO Auto score may get yet another number.
The definition of a “good credit score range” depends partly on who’s asking for it. Some lenders consider anything above 720 to be excellent; others make the cutoff at 740 or 750. If you’re on the high end of one of the categories, many lenders will consider you to be in the next higher category.
What is a good Experian credit score?
Experian provides many different credit scores. It calculates all types of FICO score and VantageScore. The most current score range for both types of score is 300-850.
Experian also provides industry-specific credit scores to lenders in certain types of businesses. The FICO Auto and FICO Bankcard scores range from 250 to 900. Those scores give greater weight to your experience in their industry. Experian also sells the PLUS score, which ranges from 330 to 830, and the FICO NextGen, which can go up to 950.
The best way to determine whether an Experian credit score is good is to first figure out which score it is.
What is a good Equifax credit score?
As noted above, the first question to ask is which score you’re looking at. In addition to FICO scores and VantageScores (which currently range from 300 to 850), Equifax is also the source for the National Equivalency Score, which ranges from 360 to 840. This is a credit score mainly offered to lenders for informational purposes, not to make lending decisions.
What is a good TransUnion credit score?
TransUnion creates the same VantageScores and FICO scores that the other bureaus offer. It also offers the TransUnion New Account Score 2.0, which is designed for financial institution use.
Good credit bureau scores from all 3 credit bureaus
Remember, the difference from one score to another is invariably due to two factors:
- Different data in your files at the different bureau
- Different scoring model used
For all scores, the higher, the better.
The path to a good score is simple. Ensure your credit report is accurate, and practice good financial behavior.
Instead of zooming in on a particular number, pay attention to the range where your score lies. Focus on the actions you can take to reach the next higher level, especially if you’re in a range where your score might be considered to be in the lower range by one lender but the higher range by another. If you have a 670 credit score, for example, try to reach 700, where you’ll be on stronger footing for approval and better credit terms.
How does each credit scoring model affect your credit score?
This is where the credit scoring models come in: they take the raw data on your credit report, plug it into a complicated mathematical formula, and spit out a number. This is your credit score.
Dozens of credit scoring models are in use (FICO alone has at least 49 different models), and most of them use the data from just one of the reports from the three credit reporting bureaus. Each credit scoring model also has its own range of scores, and the highest credit score possible could be anything from 830 using the PLUS scoring model to 990 using older VantageScore scoring models. Basic FICO scores and VantageScores range from 300 to 850.
Credit Sesame uses the VantageScore 3.0 scoring model, which is unique because it was developed by all three major credit bureaus as a joint project.
The infographic shows in greater detail, how each scoring model is different.
Know which credit bureau/credit scoring model is used to calculate your credit score
It’s important to know which combination of credit report/credit scoring model is used when assessing your credit score. There are dozens, if not hundreds, of possible combinations of the two, and each could potentially result in a different score. You don’t want to compare apples to oranges, and so knowing the specifics of how your credit score was calculated allows you to compare it more easily between sources.
For example, let’s say you wanted to compare how your credit score changed over time. You can get your credit score in a lot of different ways, such as on a credit card statement, through Credit Sesame, or when you log into your bank or credit union account, just to name a few. If you found an old statement that reports your score using the VantageScore 2.0 model with data from Equifax, that score might be very different from your current VantageScore 3.0 calculated by TransUnion and reported by Credit Sesame.
Most importantly, VantageScore changed its scale from 501-990 in the 2.0 model to 300-850 in the 3.0 model. If your 2.0 score was 800 and your 3.0 score is 700, you probably didn’t suffer a drastic score reduction. Those two numbers might be essentially the same.
What is a good credit score to buy a house?
A handful of purchases in life stand head and shoulders above the rest. They require serious planning, saving and spending, but most of us would agree they’re ultimately worth it.
We’re talking now about houses and cars. It’s possible to save for both kinds of purchases with cash by diligently setting aside funds each month over an extended period of time. But if you want to make a purchase sooner rather than later, you’ll probably need a loan.
Let’s tackle housing first. The good news for our economy is that more people are buying homes now than in recent years past.
Better credit, in general, means a lower and more competitive interest rate on your mortgage. A better interest rate could translate to tens of thousands of dollars in savings over the life of your loan.
A low interest rate is especially critical for any homebuyer who wants or needs to make a lower down payment. For those who plan to use a smaller down payment, understanding of your credit score is critical in order to keep your monthly payments in check for the term of your mortgage.
Credit scores to keep in mind while hunting for houses
For many mortgage lenders, a good credit score generally is 640 or higher. About 52% of Credit Sesame’s members have a score that falls into this category.
Why credit history matters when it comes to purchasing a home
The way you have used credit over time will work either for you or against you when it comes time to fill out all of the paperwork that makes up a mortgage application. Primarily, you will likely notice that your ranking on the very poor-to-excellent scale affects the interest rate lenders offer you. Furthermore, new rules from Fannie Mae mean that lenders will also evaluate your propensity to pay off debt, versus carry it with you from year to year.
Suppose you’ve been diligent in your use of credit. You pay off your credit card in full each month, and you make regular payments on other debt such as student loans and vehicle loans. In this case, it’s very possible to obtain the best fixed interest rate possible, currently 3.5% or even lower, with your excellent score.
A good credit score will still work in your favor, but you’ll quickly see that your credit history stacks up to a higher interest rate on your mortgage. In this case, you can expect an interest rate of about 3.75 percent. Think that doesn’t sound like a big difference? Consider this. For a $150,000 loan, that slightly lower credit score will cost you $7,600 in additional interest charges.
If you’re buying a home with a fair credit score, the ultimate American dream can still be yours—but it will come at a higher price. In this case, you can anticipate a score of about 4%. The price for your fair credit? More than $15,000.
If you have poor credit…
Those with a poor credit score are going to have a steeper hill to climb. After the housing crisis of the late 2000s, the federal government—and consequently lenders—tightened lending standards to make it more difficult for people to buy more house than they can afford. That means your lender is going to take a hard look at your job history, income and, yes, credit score to get a better sense of who you are financially. A poor credit score is a bit of a red flag, and it can mean your mortgage application will be rejected. Alternately, you might need a co-signer on your loan or a bigger down payment to cross the finish line.
Finally, those with a very bad credit score should sock away a deposit for a rental house in the near term. Your mortgage application is almost certain to be rejected at this stage of the game, and it will take regular timely payments on credit cards and other loans to start building up your credit score.
What is a good credit score to buy a car?
Having a good credit score for an auto loan has never been more important. That’s because the total balance of U.S. car loans hit a historic high of $1 trillion during the first quarter of 2016, according to Experian Automotive. Factors contributing to high levels of auto loans include cheaper gas, more expensive vehicles and lower interest rates.
With more people than ever before buying cars with financing, it’s important to be an educated consumer before visiting the used or new car lot to make a deal.
How an average credit score affects a vehicle purchase
Before mapping out the color palette of your new wheels, first consider what an average credit score could mean for the cost of your monthly car payment. You don’t want to be counted among those who can’t afford to pay their bill.
Starting from the bottom of the credit score ranking system, a very poor credit score likely means you will be paying an exorbitant interest rate in the neighborhood of 20% or more. You will also have a tough time getting car insurance.
By moving up the ladder to a poor credit score, you do yourself a small favor. The interest rate on your car loan could fall to as low as 10%, but your insurance rates will still be higher than what people with excellent credit scores pay.
At this point, we’ve reached an average or fair credit score. You can comfortably get a loan, but you might need to pay a substantial deposit to drive the car off the lot. Remember: shen a lender sees a ho-hum credit score, he or she sees greater risk you won’t be able to make monthly pays in a timely and consistent way. By making you pay more up front, the lender takes a smaller financial risk.
Why a good credit score is helpful when buying a car
According to Credit Sesame auto loan data, younger generations tend to purchase more expensive cars. Not only that, the data showed that they have borrow more, because they most likely don’t have a high income or have less in assets to use as a down payment or trade-in. With that said, it’s crucial to improve your score, if you are looking to purchase a car.
The best-case scenario is to have a credit score of good or higher. A good score doesn’t necessarily mean you can afford a luxury sports car this time out, but it does probably mean you can secure an interest rate as low as 1%. In today’s environment of slowly rising interest rates, that’s nothing short of incredible.
An excellent credit score can unlock doors of opportunity when it comes to an auto loan, including zero percent offers. You should qualify for the lowest rates and the lowest insurance costs, all other factors being equal.
Enjoy your new ride, and savor the amenities that come with being a savvy credit user.
What is a good FICO score?
As we’ve explained, there is no set definition for “good” FICO score. Many lenders consider 720 and above to be excellent and set the other categories accordingly.
When you manage your credit responsibly over time, your credit score will naturally rise. Make all of your payments on time and keep your outstanding credit card balances to no more than 30% of your credit limits. Avoid making new applications for credit unless you really need to, because every new inquiry into your credit has the potential to knock a few points off your score. Don’t close old accounts, because part of your score depends on the average age of all of your accounts.
The last factor is credit mix, and you’ll score more points if you successfully manage a variety of credit products (mortgage, auto loan, student loan, credit card). Don’t worry too much about this factor. You can achieve a great credit score without seeking out new and varied credit products just for the sake of mixing things up.
Focus instead on avoiding things that are sure to torpedo your score, like late payments.
As of June, 2016, about 1.4% of Credit Sesame member credit card accounts are in late-payment status, and 3% of all accounts are late. Another 8% of accounts are currently in collections. Those numbers don’t include accounts that were late in the past and then brought current.
These details are important to know about late payments:
- Late payments and collection accounts stay in your credit file for seven years from the date of delinquency.
- The effect of late payments diminishes over time. Recent late payments hurt worse than old late payments.
- The higher your credit score is, the more points you’re likely to lose as the result of a negative item in your file.
- The more late a payment is, the more it hurts your score (90 days late is worse than 60 days late; 60 days late is worse than 30 days late).
What is a good credit score in general?
What qualifies as a good credit score in general depends on the scale of whatever model you’re using. Higher is always better.
Credit Sesame uses the VantageScore 3.0 scoring model with your TransUnion credit report to determine your credit score. With this combination, anything between 640 and 719 is considered a good score. Higher is considered excellent.
Remember, each individual creditor, whether a bank, credit union, or private loan company, determines its own criteria for extending credit, and at what terms. Some products, like the best rewards credit cards, require very high scores to for approval. What an auto lender considers to be a good score for an auto loan might not be good enough for the most elite high-end rewards credit card!
Is 700 a good credit score?
If you get your credit score from Credit Sesame, 700 is considered a good credit score. Congratulations! You should be able to qualify for great rates on loans and credit. You still have room for improvement, though. By improving your score, you could lower the interest rates you pay on future credit products and boost your chances to get premium credit products.