What is a Good Credit Score and What Does it Mean? - Finance Quick Fix (2024)

Instead of asking what is a good credit score, ask what you can do with your FICO score

The first thing people want to know after checking their credit score is usually, “Ok, is that a good credit score?”

There’s no one answer for what makes a good credit score. What’s more important is what you can do with different scores.

See, your credit is a lot more important than you may understand. Even if you don’t plan on using debt, your credit score can mean higher car insurance premiums and having to pay a higher security deposit when you rent.

I researched five different credit scores, what you can and what you can’t do with each score.

What Determines Your Credit Score?

Knowing what makes for a good credit score and what yours will allow you to do is easier if you remember what goes into your credit score.

The Fair Isaac Corporation (FICO) is the company that establishes the standard for credit scores. It calculates a score between 300 and 850depending on your credit reportwhich is just a history of all your credit.

There are five factors that go into your credit score:

  • Payment history is the biggest factor, influencing about a third of your score.
  • Amount owed is also a big factor in your credit score and includes how much you owe on each account and how much in total credit you’ve borrowed.
  • Credit history is mostly how long you’ve been using credit so not much you can do here.
  • Types of loanslooks at different loans like mortgages, student loans, even installment loans, auto and credit cards. The difference between revolving loans with no payoff date or fixed payments and non-revolving loans is important.
  • New credit is a small part of your score but can be a deciding factor.
What is a Good Credit Score and What Does it Mean? - Finance Quick Fix (1)

While the FICO credit score range goes as low as 300, I’ve never met anyone with a score below 400 FICO. You’ve got to be hammering your credit with a lot of missed payments and bankruptcy to get below 500.

I’ve also never met anyone with a score over 815 FICO. Building a good credit score is more than just avoiding missed payments. Once you get above 720 FICO, you really have to start fine-tuning your credit report to see a higher score.

Because credit scores differ by hundreds of points, it’s impossible to talk about one FICO score as being ‘good’ or the best. It’s much better to look at individual levels, what you can expect for rates with each score and where to go from there.

Let’s look at five credit scores and what they mean for you.

What You Can Do with a Good Credit Score

Just four-in-ten Americans have a credit score above 720 FICO so you’re doing well if you can build to this point. You’ll start getting the advertised rates on mortgages and car loans if otherfactors in your credit reportare not limiting your score.

One of the biggest things to watch, even with a good credit score or higher, is yourdebt-to-income ratio. This is your monthly debt payment versus your total income and anything over 30% will start to limit your ability to get a loan at good rates.

It takes years to build to a good credit score and you can’t afford to make any mistakes. FICO studies changes in credit scores after missed payments and other bad marks. It turns out that people with higher scores see a bigger drop after something negative goes on their credit report.

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Borrowers with a 780 credit score saw their FICO drop below 560 after a bankruptcy. A 220-point drop and more than the 130-point drop for people with a 680 FICO before a bankruptcy.

A 660 Credit Score and the World Opens Up

Nearly half of all borrowers have a 660 credit score or higher but these are a very valuable few for lenders. Since most banks and traditional lenders are prohibited from lending tosub-prime borrowers, they’ll do all they can to get your business if you have a 660 FICO or higher.

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Mortgage rates won’t quite be as good as those advertised but will still be doable. Rates on personal loans will start getting more affordable around 11% to 15% onpeer lending sites. This may still seem high but it’s a lot lower than most credit card rates, making a 660 credit score a good time to consolidate your debt and pay off higher-rate loans.

You still need to protect your score at this point. FICO reports that it takes borrowers an average of three years to build back to a 660 credit score after a foreclosure and nine months just to recover from being 30-days late on a mortgage.

A 650 Credit Score is Celebrating Prime

A 650 credit score is the cutoff for what’s called ‘prime lending’ and it’s something to feel good about. Building your score above 650 will get you access to bank lending and other traditional loans. That usually means lower rates and less hassle from loan officers.

A credit score of 650 FICO still isn’t perfect though an is usually due to high debt-to-income, several cards with a highcredit utilization ratiobut nothing really bad. Someone with a 720 credit score will fall to 650 after one missed mortgage payment.

Mortgage rates can still be manageable around 6% with a good down-payment but other loans may require collateral.

This is where most younger borrowers are even if they have never hurt their credit with a negative remark. The average credit score for Americans 30 to 39 years old is around 650 FICO, mostly because they just don’t have much of a credit history.

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A 580 Credit Score Just isn’t Good Enough

If you’re coming up from the bottom then a 580 credit score is a good start. If your credit score is falling though, you really need to figure out why because you’ll start seeing the rate on loans jump.

Don’t be too hard on yourself though because one-in-five Americans have a score of 580 FICO or lower. A short-sale or foreclosure will usually put you here if you had around a 720 credit score to begin.

A credit score of 580 and lower is where you are really going to start having trouble.

Since you likely won’t be able to get a mortgage, you’ll be stuck renting. Landlords can ask for your social security number and check your credit. A score of 580 FICO may mean they refuse to rent to you or require a higher security deposit.

This is also the point where you’ll start paying higher rates on car insurance. Most people don’t realize it but insurers check your credit and are legally-allowed to charge more to bad credit drivers, a practice calledcredit-based insurance scoring.

Most banks won’t be able to lend to you and you need to start watching the lenders that make credit offers because here is where the predators come out. They know that borrowers with a 580 credit score or lower have fewer choices and they’ll be waiting to take advantage of you.

One of the few loan sites still available to bad credit borrowers that I recommend isPersonalLoans.com, a loan aggregator website. The network of lenders offers personal loans, peer loans and traditional bank loans. I’ve used the site for two loans in the past and like the transparent rates and no origination fee.

What You Can’t Do with a 520 Credit Score

While it’s easier (and more positive) to talk about what you can do with higher credit scores, having a 520 credit score or lower is really about what you can’t do.

If your credit score is this low, it’s usually after a bankruptcy and there isn’t much you can do about it except slowly rebuild your credit. Very few peer-to-peer loan sites will still be available to this level borrower and rates will almost always be 30% or higher.

While your options are severely limited with a 520 FICO,avoid payday loansand cash advances at all costs. The fees charged on these loans are a one-way ticket to a debt trap of borrowing more every two weeks.

It’s not going to be easy but the best thing to do at this point is go after your spending, so you don’t need credit. It will take up toten years to fully get out from under a bankruptcy, but your credit score will start to increase within a few months. Within a month, you can be above 600 FICO again and getting better rates.

What is a Good Credit Score and What Does it Mean? - Finance Quick Fix (5)

What is a Good Credit Score?

Your first goal should be to get your credit score above the cutoff for prime lending. That means building to a 650 credit score which puts you ahead of about a third of Americans.

I won’t call that a good credit score though because you’re still going to be paying higher rates on mortgages and other types of loans. The only difference is that with a 650 FICO or higher, you’ll start actually getting offers from banks for credit.

I would consider anything from 670 to 740 FICO and higher to be a good score. That puts you right in the middle of where most borrowers are in the credit score range and well into prime lending.

Getting above a 740 credit score is great, that’s where you want to be eventually. You’ll start getting the best rates and be ahead of four-in-ten borrowers.

How to Find Your Credit Score

I hope this all shows why you need to check your credit score regularly and know your FICO. If you don’t plan on getting a loan, your credit score is still important in other parts of your life like car insurance and renting a home.

Even people trying to be debt-free may need a loan to cover emergency expenses so make sure you know your credit score before you need a loan.

You have a legal right to see your credit report from each of the three credit bureaus once a year. These are the companies that keep records of your credit history, payments, types of credit and everything else FICO uses to calculate your score.

It’s important to check each of these three reports because lenders may not report everything to each company. That means one report may be different from another and your credit score will differ depending on which report it’s based.

A lot of credit cards will offer to track your credit score and update it monthly. It’s a nice feature but not if you end up overspending on the card and paying high interest rates. The program also won’t show what’s on your credit report so it’s important to check your report regularly for fraud and other problems.

Instead of asking “What is a Good Credit Score,” the more important question is, “What can I do with my credit score?” Your FICO score will mean a lot when you go to apply for a loan, rent a house or buy car insurance. Building your credit score and protecting it will save you thousands in interest…and that’s always good.

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What is a Good Credit Score and What Does it Mean? - Finance Quick Fix (2024)

FAQs

What is a Good Credit Score and What Does it Mean? - Finance Quick Fix? ›

Most credit score ranges are similar to the following: 800 to 850: Excellent Credit Score. Individuals in this range are considered to be low-risk borrowers. They may have an easier time securing a loan than borrowers with lower scores. 740 to 799: Very Good Credit Score.

What is a good credit score to get finance? ›

Different companies will be looking for different things in potential customers, so while you may be one lender's cup of tea, you may not tick all the boxes for another. We provide a score from between 0-999 and consider a 'good' score to be anywhere between 881 and 960, with 'fair' or average between 721 and 880.

What does a good credit score mean? ›

“A high credit score means that you will most likely qualify for the lowest interest rates and fees for new loans and lines of credit,” McClary says. And if you're applying for a mortgage, you could save upwards of 1% in interest.

Is there a quick way to fix your credit score? ›

There is no quick way to fix a credit score.

The best advice for rebuilding credit is to manage it responsibly over time. If you haven't done that, then you'll need to repair your credit history before you see your credit score improve. The following steps will help you with that.

How fast can you fix a 500 credit score? ›

For instance, going from a poor credit score of around 500 to a fair credit score (in the 580-669 range) takes around 12 to 18 months of responsible credit use. Once you've made it to the good credit zone (670-739), don't expect your credit to continue rising as steadily.

What credit score do you need to get a $30,000 loan? ›

In general, lenders extend $30,000 loans to borrowers with good to excellent credit, which is typically 670 and higher. But there may be lenders who lend to borrowers with bad credit. If you're having difficulty qualifying, you may consider getting a cosigner or co-borrower to help you get approved for the loan.

What credit score is needed to buy a car? ›

Still, you typically need a good credit score of 661 or higher to qualify for an auto loan. About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian. Meanwhile, low-credit borrowers with scores of 600 or lower accounted for only 14% of auto loans.

Can you get a 900 credit score? ›

While older models of credit scores used to go as high as 900, you can no longer achieve a 900 credit score. The highest score you can receive today is 850. Anything above 800 is considered an excellent credit score.

How to wipe your credit history clean? ›

It's not possible to wipe your credit history clean. Negative items like late payments, collections and bankruptcies typically remain on your credit report for several years. However, you can rebuild your credit with on-time payments, debt reduction and responsible credit account management.

Should I pay off my credit card in full or leave a small balance? ›

It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.

How long will it take to get my credit from 550 to 700? ›

The time it takes to raise your credit score from 500 to 700 can vary widely depending on your individual financial situation. On average, it may take anywhere from 12 to 24 months of responsible credit management, including timely payments and reducing debt, to see a significant improvement in your credit score.

Why did my credit score go from 524 to 0? ›

Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.

How much of a loan can I get with a 500 credit score? ›

You can likely borrow anywhere from a few hundred dollars to $50,000 with a 500 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.

What credit score do you need to finance? ›

Qualifying for a personal loan typically requires a minimum credit score of at least 580. Lenders want to see that loan applicants have a history of responsibly paying debt and your credit score provides a window into your past behavior.

What credit score do you need for possible finance? ›

Possible caters to borrowers who have limited borrowing options because of their poor credit scores. The company doesn't check your FICO score and markets itself as a payday loan alternative. However, you'll only be able to take out up to $500, and the lender charges extremely high APRs.

What is a good enough credit score to get a loan? ›

Lenders generally view those with credit scores of 670 and up as acceptable or lower-risk borrowers.

What is a good credit score for a loan? ›

A CIBIL score of 750 or above in your credit report is ideal. It will aid in qualifying you for personal loans and credit cards. However, if your CIBIL score is below 685, you will find it harder to borrow funds from banks and NBFCs.

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