What is a Good Credit Score?
Your credit score is a major factor in your overall financial health. Credit scores are used in lending decisions to determine whether you qualify for loans and credit cards, and the interest rate you qualify for. Your credit score may also be evaluated when applying for rentals, leases, utility accounts, or even when applying for certain jobs. The better your credit score is, the more likely you are to be approved for loans and receive better rates.
So, how do you know what a “good” credit score is? We’re here to answer your credit score questions so you can make sure your score is in good shape.
What is a Good Credit Score?
There are a few different scoring models for credit scores. Most scoring models range between 300 and 850. Scores are ranked by quality, such as poor, fair, good, and excellent. A credit score of 700 or higher is generally considered “good.” Some scores in the “good” range may also include the high 600s as well as the 700s. A score of 800 or higher is considered to be “excellent.” Once your credit score reaches the mid-700s and higher, you are considered a prime candidate for lending and are more likely to qualify for loans and qualify for the best interest rates.
How are Credit Scores Calculated?
Your credit score is determined by your previous lending behavior. Lenders report your credit usage information to the credit bureaus, and then the credit bureaus use the information collected to evaluate your credit behavior and assign your credit score. Responsible past credit use makes lenders more confident when evaluating requests for new credit accounts. Lenders can determine the likelihood that you will pay back future credit based on past behavior.
Here are the factors that are used to calculate your credit score and the weight each factor holds in the calculation:
- Payment History (35%) – Whether you pay your bills on time. A few late payments here and there won’t automatically lower your score, but chronic late or missed payments will negatively affect your credit score. Try to stay up-to-date on all your payments, and pay at least the minimum amount due by the payment due date.
- Credit Utilization (30%) – The amount of credit you are using compared to the amount available to you (your credit limit). Keep your credit utilization ratio low to improve your credit score and avoid maxing out your credit limits. Shoot to keep your credit utilization below 30%.
- Credit History (15%) – The length of time you’ve been an active credit user. If you are new to borrowing credit, your credit history will be limited. But once you have a more established credit history with positive lending behaviors on your record, lenders will have more information to base their lending decisions on. Negative items in your credit history like multiple late or missed payments may count for more if they occurred recently rather than further in the past. Additionally, the age of your different credit accounts and when you last used them is also evaluated as part of your credit history. Keeping your oldest accounts open for a while, even if you don’t use them, can help your credit score by extending your history. On the flip side, opening new accounts will lower your average credit age. Time and patience are the biggest factors when it comes to improving your credit history.
- Credit Mix (10%) – The type of credit accounts you have. Having a mix of different accounts such as credit cards (including retail store cards and cards from financial institutions), auto loans, mortgage loans, and other loan types can help improve your credit score. Lenders like to see evidence that you can successfully manage multiple credit accounts at once. But don’t open extra accounts just for the sake of padding your score. Use your credit intentionally, and only add new accounts when it makes sense for you.
- New Credit (10%) – If you’ve recently opened any new credit accounts. This can ding your score especially if you’ve opened several new accounts in a short period of time. Avoid opening a flurry of accounts at once, as this behavior appears risky to lenders. Again, it’s important to be strategic with your credit usage, and consider how your credit behavior may affect your credit score.
How Can I Check My Credit?
Most financial institutions and credit card companies provide your credit score for free in their online platforms and often include your score with your monthly statement. Robins Financial offers eligible members the ability to view your FICO® Score for free within Digital Banking.
You are also entitled to one free credit report per year from each of the major credit bureaus. You can request your free credit report at AnnualCreditReport.com. While your credit report does not include your credit score, viewing your full credit report is still a helpful reference since it is what your credit score is based on. If you know how your credit score is calculated, then you know which factors on your credit report are affecting your score and how, so you know what you need to focus on to improve your credit score.
How Can I Improve My Credit?
Robins Financial is here to help you improve your credit. We offer the financial tools that help our members succeed. Our credit cards and loans help you get what you need while also working to improve your credit. Responsible use of these financial tools over time will help you improve and maintain your credit score.
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.