Credit scores are used by lenders, including banks providing mortgage loans, credit card companies, and even car dealerships financing auto purchases, to make decisions about whether or not to offer your credit (such as a credit card or loan) and what the terms of the offer (such as the interest rate or down payment) will be. There are many different types of credit scores. FICO® Scores* and scores by VantageScore are two of the most common types of credit scores, but industry-specific scores also exist.
What Is a Good FICO® Score?
One of the most well-known types of credit score are FICO® Scores, created by the Fair Isaac Corporation. FICO® Scores are used by many lenders, and often range from 300 to 850. A FICO® Score of 670 or above is considered a good credit score, while a score of 800 or above is considered exceptional.
|Credit Score||Rating||% of People||Impact|
|300-579||Very Poor||16%||Credit applicants may be required to pay a fee or deposit, and applicants with this rating may not be approved for credit at all.|
|580-669||Fair||17%||Applicants with scores in this range are considered to be subprime borrowers.|
|670-739||Good||21%||Only 8% of applicants in this score range are likely to become seriously delinquent in the future.|
|740-799||Very Good||25%||Applicants with scores here are likely to receive better than average rates from lenders.|
|800-850||Exceptional||21%||Applicants with scores in this range are at the top of the list for the best rates from lenders.|
What Is a Good VantageScore?
Scores by VantageScore are also types of credit scores that are commonly used by lenders. The VantageScore was developed by the 3 major credit bureaus including Experian, Equifax, and TransUnion. The latest VantageScore 3.0 model uses a range between 300 and 850. A VantageScore above 660 is considered good, while a score above 780 is considered excellent.
|Credit Score||Rating||% of People||Impact|
|300-499||Very Poor||5%||Applicants will not likely be approved for credit.|
|500-600||Poor||21%||Applicants may be approved for some credit, though rates may be unfavorable and with conditions such as larger down payment amounts.|
|601-660||Fair||13%||Applicants may be approved for credit but likely not at competitive rates.|
|661-780||Good||38%||Applicants likely to be approved for credit at competitive rates.|
|781-850||Excellent||23%||Applicants most likely to receive the best rates and most favorable terms on credit accounts.|
Why Credit Scores Matter
Credit scores are decision-making tools that lenders use to help them anticipate how likely you are to repay your loan on time. Credit scores are also sometimes called risk scores because they help lenders assess the risk that you won't be able to repay the debt as agreed.
Having good credit is important because it determines whether you'll qualify for a loan. And, depending on the interest rate of the loan you qualify for, it could mean the difference between hundreds and even thousands of dollars in savings. A good credit score could also mean that you are able to rent the apartment you want, or even get cell phone service that you need.
Think of your credit scores like a report card that you might review at the end of a school term, but instead of letter grades, your activity ends up within a scoring range. However, unlike academic grades, credit scores aren't stored as part of your credit history. Rather, your score is generated each time a lender requests it, according to the credit scoring model of their choice.
Every time you set a major financial goal, like becoming a homeowner or getting a new car, your credit is likely to be a part of that financing picture. Your credit scores will help lenders determine whether or not you qualify for a loan and how good the terms of the loan will be.
However, credit scores are usually not the only things lenders will look at when deciding to extend you credit or offer you a loan. Your credit report also contains details which could be taken into consideration, such as the total amount of debt you have, the types of credit in your report, the length of time you have had credit accounts and any derogatory marks you may have. Other than your credit report and credit scores, lenders may also consider your total expenses against your monthly income (known as your debt-to-income ratio), depending on the type of loan you're seeking.
The information that impacts a credit score varies depending on the scoring model being used. Credit scores are generally affected by elements in your credit report, such as:
- Payment history for loans and credit cards, including the number and severity of late payments
- Credit utilization rate
- Type, number and age of credit accounts
- Total debt
- Public records such as a bankruptcy
- How many new credit accounts you've recently opened
- Number of inquiries for your credit report
- Most influential: Payment history on loans and credit cards
- Highly influential: Total debt and amounts owed
- Moderately influential: Length of credit history
- Less influential: New credit and credit mix (the types of accounts you have)
- Most influential: Payment history
- Highly influential: Age and type of credit, percent of credit limit used
- Moderately influential: Total balances and debt
- Less influential: Recent credit behavior and inquiries, available credit
- Your race, color, religion, national origin, sex or marital status (U. S. law prohibits credit scoring formulas from considering these facts, any receipt of public assistance or the exercise of any consumer right under the Consumer Credit Protection Act.)
- Your age
- Your salary, occupation, title, employer, date employed or employment history (However, lenders may consider this information in making their overall approval decisions.)
- Where you live
- Soft inquiries. Soft inquiries are usually initiated by others, like companies making promotional offers of credit or your lender conducting periodic reviews of your existing credit accounts. Soft inquiries also occur when you check your own credit report or when you use credit monitoring services from companies like Experian. These inquiries do not impact your credit score.
If you reviewed your credit information and discovered that your credit scores aren't quite where you thought they'd be, you're not alone. Since your credit scores use information drawn from your credit report, your credit activity provides a continually-updated basis of data about how responsible you are with the credit you're currently using. At Experian, we provide information that can help you see your credit in new ways and take control of your financial future. You can learn more about:
- How choices that you make can improve your credit score
- Why using secured credit cards can improve your credit history
- What a credit repair service can - and can't - do for your credit
- How to protect or restore your good credit after major life events like marriage, divorce, or the death of a spouse
- Why knowing your FICO® Score* is important when you consider making a big purchase
How to Get Your FICO® Score for Free
Understand the reasons that help or hurt your FICO® Score, including your payment history, how much credit you are using, as well as other factors that influence your overall credit.
Get Your FICO® Score
Minimum Credit Scores
There is no minimum credit score needed to apply for most loans or credit cards. However, you are less likely to qualify for a loan or credit card and less likely to receive favorable rates when your credit score is low. If you are trying to qualify for a conventional loan or credit card with a low credit score, you may wish to wait until your credit improves, so you can ensure you get the best rates possible.
Some mortgage servicers such as the FHA provide general guidelines for those with credit scores on the lower end:
- FHA mortgage loans require a minimum of 580 or higher with a 3.5% down payment.
- For FHA applicants under 580, qualification for a loan is still possible, but a 10% down payment would be required along with meeting other requirements. See FHA's site for more information.
- What to Do If You Don't Have a Credit Score
If you are under 21, you must have a cosigner or be able to demonstrate that you have an adequate source of income to pay back any credit that is extended. With responsible usage, a parent cosigning a credit card (or adding you as an authorized user to one of their accounts) is a great way to help establish a positive credit history.
For others, the best way to establish credit may be to work with your bank or credit union to open an account with a small credit limit to get you started. Opening a secured credit card is another way to get started building your credit. Then, with time and good account management, a good credit history (and scores) will be within your reach.
Credit Reports and Credit History
Credit scores are not included with credit reports. Additionally, credit scores are not stored as part of your credit history. Your credit score is calculated only when your credit score is requested. Your credit score can change over time, based on your credit history—including late payments, amount of available debt, and more.
Joint accounts are meant to help individuals who cannot qualify for a loan by themselves. With joint accounts, all of the joint account holders, guarantors, and/or cosigners are responsible for repaying the debt. The joint account, along with its credit history, appears on the credit report for all account holders. When all payments are made on time, the joint account can help build positive credit. However, if someone defaults on payments, all of the joint account holders will see the default on their own credit reports. Depending on the severity of the late payments and negative information, everyone's credit scores could be impacted significantly.
When you get married, your credit scores (or reports) won't merge with your spouse's. Joint accounts you share may appear on both of your credit reports, but your credit history will remain independent.
Checking Your Own Credit
Another common question is whether checking your own credit report or score can hurt it. The answer is no. Checking your own credit scores doesn't lower them. Checking your own credit report creates a special kind of inquiry (known commonly as a soft inquiry) that isn't considered in credit score calculations. Without the risk of harming your scores by checking your credit report and scores frequently, don't steer away from viewing them as often as you need to.
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