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Your credit utilization ratio should stay under 30%, but the lower the better.
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A good FICO credit score is a 670 or above, and a good VantageScore is a 661 or higher.
A good credit score can get you more favorable interest rates rates on mortgages, auto loans, or a new credit card.
The biggest factors in how your credit score is calculated are payment history, length of history, and utilization ratio.
Credit scores are like the GPAs of adulthood.
GPAs reflect how you did throughout a semester, just as credit scores are a reflection of all your credit-related activity. You might not enjoy sharing either with other people, and looking at them may spark anxiety in your chest.
Having a good GPA and a good credit score will also make your life easier, whether you’re applying to college or applying for a loan. While schools may have a preferred score for acceptance, credit score thresholds are a little more clear-cut.
What is a good credit score?
Your credit score is a three-digit number that reflects the information in your credit reports. Lenders look at these scores to determine how likely you are to pay back the money you borrow. The most common credit scoring models that lenders look at are FICO and VantageScore, both of which score consumers on a 300-850 scale.
Both models divide this range into five categories, which are as follows:
Credit score categoryFICOVantageScorePoor/Very Poor300-579300-499Fair/Poor580-669500-600Good/Fair670-739601-660Very good/Good740-799661-780Exceptional/Excellent800-850781-850
A good FICO credit score starts at 670 while a good VantageScore starts at 661. While these scores will qualify you for loans, they won’t necessarily qualify you for the best rates. The higher your credit score is, the better rates you’ll qualify for.
How to check your credit score
Under federal law, you are entitled to one free credit report every year from each of the three credit bureaus, though because of the pandemic, you can get a free credit report from each bureau every week until the end of 2023.
If you don’t need a comprehensive look at your credit history, there are a variety of services where you can access your credit score. Most financial institutions, such as a credit card company or a bank, will allow you to access your credit score.
There’s plenty of free services that will also allow you to access your credit score, though take a moment to read all the terms before you agree to anything. This information is fairly easy to access, so you shouldn’t be paying to view your score.
How your credit score is calculated
When FICO and VantageScore assign you a credit score, they are really grading your credit report. Imagine when your report card came in at the end of the school semester. Your overall grade was made up of 30% homework, tests and quizzes was another 40%, projects was 20%, and 10% for attendance. Replace homework with payment history and projects with credit utilization, and you have your credit score.
Here’s the full breakdown of how FICO and VantageScore crunch your credit score:
FICOVantageScore
Payment history (35%)
Credit balance (30%)
Length of credit history (15%)
New credit (10%)
Mix of credit accounts (10%)
Payment history (35%)
Length & type of credit (30%)
Credit utilization (20%)
Credit balances (11%)
Recent applications (5%)
Available credit (3%)
There’s a lot going on here, and you won’t have direct control over some of these factors. For example, your credit history looks at the length of your credit history. If you just started your credit journey, nothing will extend your credit history except time.
For the most part though, your credit score is firmly under your control. Payment history and credit balances are particularly important to pay attention to. Payment history looks at how consistently you pay your bills. A record of consistently on-time payments will reflect positively on your score and vice versa.
Note: Missed payments will stay on your credit report for seven years.
Credit balances look at how much credit you’re using at the moment. It’s generally recommended that you keep your credit-utilization rate below 30%. This means using less than $3,000 if you have a credit limit of $9,000. That said, the lower the rate, the better off you are. The average utilization rate for someone with an 800 FICO score or higher is 5.7%.
Additionally, when you open these lines of credit, lenders pull what is called a hard inquiry. This will lower your credit score as well. However, hard inquiries stop factoring into your credit score after a year and drop off your credit report entirely after two years, so they don’t permanently influence a credit score.
Note: FICO and VantageScore released new scoring models (10T and 4.0 respectively) in 2020. Lenders are slowly but surely adopting these new models, which look at your credit balances from month to month for the previous 24 months.
How to improve your credit score
With your grading criteria set, you can go about fulfilling them. Of course, this is easier said than done.
If nothing else, your priority should be making all your payments on time. Payment history is weighed the most in credit score calculations, so you should prioritize keeping your history clean. You can employ a credit monitoring service that will alert you to upcoming and late bill payments if you have trouble keeping track of deadlines.
Your second priority should be keeping your credit utilization ratio down, specifically on your revolving lines of credit like credit cards. If you’re having trouble with spending, stow your credit card away instead of canceling it so you don’t hurt the average length of your credit history.
It may also be worth your time to request a comprehensive credit report from each credit bureau, which will provide you with a detailed look at all your credit activity. Some of this may be inaccurate, which isn’t uncommon. A 2021
Consumer Report survey reported that 34% of consumers have found an inaccuracy on their report. Most of these inaccuracies include a misspelled name or wrong address, but other errors, such as a mistaken hard inquiry or a misreported delinquency, may bring down your credit score.