The word “good” can be used a lot of different ways, in a lot of different contexts. But when it comes to credit scores, a “good” credit score ranges from 720 to 780. But even this simple answer needs more explanation than these numbers alone can provide. So, what is a good credit score and how is it defined? Let’s dive in.
Why do credit scores exist?
A credit score can help provide lenders with proof of your credit eligibility. That number then figures into how much the bank may be willing to loan you and at what rate of interest. This score can be used to assess your creditworthiness when you may want to open a credit card, rent an apartment, lease a car or even buy a home. So, learning your credit score can help you gauge where you might stand with creditors. Whether you’re wondering “What is the average credit score?” or trying to gauge where yours fits in the spectrum; you should know there’s more than one kind of credit score.
Types of credit scores
In the U.S., credit scores are measured by two credit analytics scoring models, VantageScore® and FICO®. They each use different calculations — and thus may formulate different results — but serve much the same purposes. That's why you might find that you have two different credit scores. It also means that there may be a difference in what is considered good credit between these two companies.
What is a good VantageScore credit score?
Within the VantageScore model, a score between 720 and 780 is categorized as so:
- Good: 661–780
The VantageScore assessment matters because it is a primary credit analytics company. In fact, three major credit bureaus, Equifax®, Experian™ and TransUnion®, created VantageScore in 2006. They built this scoring model at a time when FICO was the only credit assessment system in town.
What is a good FICO credit score?
Within the FICO model, a score between 720 and 780 is categorized as so:
- Good: 670–739
- Very Good: 740–799
The Fair Isaac Corporation, or FICO, began developing credit scores in 1989. It works as a data analytics company and sells its distinct credit scoring services to lenders. You can also access your FICO score through the major credit bureaus.
How are credit scores calculated?
Both VantageScore and FICO use the same five main factors for their calculations but weigh each factor differently. Let’s look at these five factors more closely, since they reveal how you use credit can impact your overall credit score.
Credit history
Your personal credit history documents your history of debt repayment. That means the rate and consistency of how you pay your bills.
Debt
This factor compiles how much accumulated debt you have at a given time. It can include credit card balances as well as outstanding loan amounts.
Credit mix
There are several types of credit products, including auto, student and personal loans. The more kinds of credit you have, the better your credit mix.
Credit age
When combined with credit mix (above) this factor can also be called depth of credit. It refers to how long you’ve been carrying these credit accounts. It may come as a surprise but carrying credit accounts longer can sometimes benefit your overall score because it can indicate credit stamina and experience.
Credit utilization ratio
You may have a lot of credit cards, but how you use them matters more than your number of accounts. The credit utilization ratio factor calculates what percentage of your credit limit you use on your accounts. This factor informs the analysis because it can show how much you owe balanced against how much credit you have remaining.
In summary
Credit rating agencies use distinct factors that contribute to the calculation of your credit score. Luckily, many of them are within your control, such as your credit mix as well as your consistency of repayment. Determining what is a good credit score results in similar but distinct ranges for VantageScore and FICO. But no matter how they gauge the score attached to good credit, there are steps you can take to maintain or improve yours.
