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What is a "Good" Credit Score?

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From the news, to financial applications, and even from friends and family—we all have heard about the importance of a good credit score, but what makes a credit score “good” and what can you do to obtain and preserve a good score?

Let’s start by defining what a credit score even is. Your credit score—also referred to as your FICO® Score—is an important part in your financial wellbeing. Your score helps lenders to determine just how reliable you are as a borrower. It is also used to determine the rate that you will pay for any loans you are looking to open. 

When purchasing something big, like a home, a good score could save you to tens of thousands of dollars in interest payments. Additionally, the higher your score is, the better the available financing options and rates are. Credit scores fall somewhere between 300 to 850.

Your credit score is updated monthly and an estimated reading of it can be found online at sites such as creditkarma.com. This is not always the most reliable, because it cannot give a true score without pulling your credit score from one of the three major credit agencies (TransUnion, Equifax, Experian) which you really want to avoid doing as much as possible. However, you are allowed one free credit report (not including the score) from the three listed agencies each year. This can be found by going to Annualcreditreport.com. You might notice that each agency has a slightly different score for you. This is common because they each might weight your credit score makeup in a slightly different algorithm.

Your FICO® Score is calculated using pieces of data in your credit report that are grouped into five main categories:

Payment history (35% of your score), is the largest and most influential factor in your credit score makeup. This factor shows if you have a good track record of paying on time each month. If you are often late on payments, it will be reflected in this portion of your credit score.

Amounts owed (30%), is simply how much do you have borrowed? Your score could drop if you are consistently maxing out credit scores each month. It is recommended to only use 50% of the limit set on your credit card at a time. If you consistently need to use your credit card maximum available credit, then ask to raise your cards limit to maintain a 50% usage.

Length of credit history (15%). Like fine wine, credit gets better with age! Having a long-term loan or a credit card with multiple years on it will provide a solid track record which will boost your score. On the other hand, lots of recent loans or new credit will drive down the average age of your credit history and could negatively affect your score.

New credit & inquiries (10%), is similar to length of credit history. As mentioned above, a lot of new credit at once, such as signing up for a ton of store credit cards, will not be good for boosting your score. It is also not good to get too many inquiries. When you seek out pre-approvals for things like cars, it will be reflected in your credit report and could lower your credit score.

Credit mix (10%). Lenders want to see that you are capable of responsibly maintaining a variety of loan types. Having a mix of credit cards and other loans (such as an auto loan) shows you can manage multiple loans and accounts properly.

Lenders generally interpret scores as follows:
800-850: Exceptional
740–799: Very Good
670–739: Good
580–669: Fair
580 or less: Poor

If your score is 670 or above—keep up the good work! Maintain your good spending and payment habits and continue to check your score regularly. If your score isn't in the higher range, don't panic. There are ways to give your score a boost and continue to improve it over the next few years. Read some of our other articles on Debt Management and Credit 101 to see how you can work on improving your score today!

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