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What is a good credit score?
A FICO score of 670 or more is perceived as good, while above 800 is exceptional. Conversely, a FICO score of 580 – 669 is only fair, and a score of 579 or below is considered poor. The majority of credit scores lie between 600 and 750.
The two most common credit scoring models are FICO Score and VantageScore. They both use the 300 to 850 score range and analyze much of the same information, though the VantageScore classifications are slightly different from the ones FICO uses (for example, 665 is considered “fair” on the FICO scale, but “good” on the VantageScore scale). Your financial history, including your credit usage and recent inquiries, is collected in order to generate your credit score.
Both FICO and VantageScore provide your primary score, which is their prediction of your ability to make debt payments based on your past tendencies. However, you can also get an industry-specific FICO score for something like a mortgage. These often range from 250 to 900 and estimate how likely you are to pay a particular type of debt, including credit card debt and other loans.
A good (high) credit score is crucial for obtaining loans and other financial resources because it indicates to lenders that you are a low credit risk. Now that you know what your credit score means, it’s important to learn what affects your credit score and how to improve it.
What hurts your credit score
Negative information can stay on your credit report for as long as seven to ten years, so it’s essential that you work to handle your accounts responsibly. Monitoring your credit and making payments in full and on time are critical aspects of maintaining good credit. However, it’s also imperative to know what negatively impacts your credit report so you can avoid it.
- Applying for credit. When you apply for a credit card, issuers check your credit report with what is known as a hard inquiry. This review of your credit can decrease your credit score by several points, so it’s paramount that you choose your applications wisely. On the plus side, hard inquiries should drop off your report after two years.
- Consolidating credit cards. Moving your balances to one card can seem like a beneficial activity, but it can harm your credit. Doing this increases your credit utilization ratio by decreasing the total amount of credit you have available, which may initially lower your score.
- Failing to have credit diversity. Using only one type of credit can also reduce your score. Your credit should be a mix of credit cards and other kinds of loans with revolving and installment plans.
- Cosigning credit applications. Agreeing to be a cosigner for a family member or friend with subpar credit can be a significant risk. Your credit could suffer the consequences of their delinquency.
- Missing payments. A defaulted payment more than 30 days late can have a negative effect on your credit score. The lender can report your delay, thus hurting your credit. What’s more, it can stay on your credit report for seven years.
- Debt charge-off and collections. Should you fail to pay a debt, the creditor can write off your account as a loss or contact a collection agency, both of which will lessen your credit score. Collections can also remain on your credit report for seven years.
- Settling accounts. An issuer can settle your debt, meaning they accept less than you owe, but failing to repay this debt is still shown on your credit report.
- Closing accounts. Closing your credit account diminishes your available credit, affecting your credit utilization ratio and credit history. You want to keep accounts open as long as possible in order to build credit.
- Voluntary surrender or repossession. Whether you surrender collateral, such as your house or car, voluntarily or it’s repossessed from you, it will become a negative item on your credit report. You will also be responsible for any remaining debt balance.
- Filing for bankruptcy. If you file for Chapter 7 bankruptcy (liquidation), you most likely won’t have to repay any of the debt in the filing, but your credit report will show the bankruptcy for 10 years. In a Chapter 13 bankruptcy filing, or a reorganization of finances, you’ll be responsible for paying some of the debt and the notation will stay with you for seven years.
How to check your credit score
It’s important to check your credit score and report frequently. This way you can track your progress to see whether your credit history is improving or not, and adjust your actions accordingly.
You can check your credit score by requesting your score from your credit card company, through your bank or through an online service. Be wary when choosing the last option, though. Few sites offer free credit scores without any gimmicks. Some use it as a ploy to get you to inadvertently sign up for a paid service.
As for your credit report, you can request a copy from the three major credit bureaus, or credit reporting agencies: Equifax, Experian and TransUnion. You can only do this for free every 12 months, but it’s a useful service. Make sure to scan your credit report for errors, because it’s possible for mistakes to occur that damage your credit score. If you watch your credit closely, you can dispute any accuracies before too much damage is done.
Why good credit matters
When you have good credit, you have more of a financial advantage than you would if you had poor credit. Showing that you’re financially reliable allows you to get approved for credit cards and loans with lower fees and interest rates. You’ll also be more qualified for rewards and perks.
There are some surprising circumstances where good credit matters. Landlords, mobile phone providers and even potential employers can conduct credit checks to analyze your financial risk level. This means that your credit could stop you from acquiring housing, a smartphone or even a new job.
How to improve your credit score
It takes more than just a few days or weeks to improve your credit score. In fact, it often takes several months or even years to repair bad credit. The length of time it will take to get back to good credit depends, in large part, on how severe your financial situation is and the steps you’re taking to remedy it.
If your credit is good, or at least fair, you can make it even better by focusing on your payments. This includes any outstanding debts in addition to your credit card payments. Work to pay down other debt before focusing on your credit card.
Making full payments early or on time plays a large role in building your credit. Not using too much credit at one time ensures that you will be able to make monthly payments. It’s advised that your credit utilization, or the ratio of your credit card balance to your credit limit, stay below 30 percent.
If you have poor credit, attempting to repair it can seem like a daunting task. In order to get it on the mend, you may want to apply for a credit card for designed for consumers with bad credit. After you get such a card, follow the steps below to raise your credit score from less-than-desirable to satisfactory.
- Use the credit card. You have to use the card to incur credit debt that you will turn around and repay to raise your credit score.
- Pay at least the minimum balance on time. A surefire way to start repairing your credit is to never miss a payment. It’s even better for your credit score if you pay more than the minimum amount.
- Monitor your credit reports. As mentioned previously, you should check your credit reports often to track your progress and look for discrepancies.
- Look for card upgrades. As you rebuild your credit, better credit cards will become available to you. Keep an eye out for cards at your institution with lower fees and better perks.
- Repeat. This step is self-explanatory. Start the credit repair process over again to continue to build your credit.
Even if your credit score goes from bad to fair to good, there’s no reason to stop striving for improvement—challenge yourself to achieve an excellent credit score.
Having a good credit score is essential to receiving financial resources, such as loans. Not to mention other factors, including applying for a lease or financing your car, where your credit report comes into consideration.
Furthermore, building up your credit helps you save money in the short term and in the long run. People with good credit are less risky for lenders and, as a result, typically pay cheaper deposits, fees and interest rates. Make managing your credit score a priority today.
Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
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