What Is a Good Credit Score
- There is no universal definition of a “good” credit score.
- The range for a "good" credit score depends on the credit scoring model.
- What’s considered a “good” credit score depends on the lender and industry – auto, mortgage, credit card, etc.
You often hear about the importance of having a good credit score. But what exactly is a good credit score?
Generally speaking, a score in the high 600s or above is considered a good credit score, but it depends on what you’re trying to do.
This article looks at some of the different ways of defining a good credit score, and why they matter.
Topics covered include:
Different credit scores for different purposes
What is an above-average credit score?
What are prime and subprime credit scores?
What is a good credit score?
How to get a good credit score
What is a good credit score: FAQs
Different Credit Scores for Different Purposes
One thing you might notice about credit scores is that they vary, even for the same person. That’s because a credit score has two elements – a credit scoring model and a credit report, and there are many combinations of report and scoring model.
First of all, there are three major credit reporting agencies (also called credit bureaus): Equifax, Experian, and TransUnion. Each may have a slightly different version of your credit history, and credit scores are based on that history.
Second, there are different credit score models. The oldest and most widely-used model is the FICO Score. More recently, the three major credit bureaus created a different model called the VantageScore. There are many versions of these scoring models. FICO and VantageScore release new ones every few years, but lenders don’t always switch, so lots of older models are still out there. In addition, there are industry-specific variations – for credit cards, insurance, auto lending – and educational scores for consumers as well. In fact, there are at least 20 credit scoring models being applied to three credit reports – meaning you could have as many as 60 credit scores.
With all that said though, most credit scores are based on a scale of 300 to 850. The next few sections of this article explain how lenders look at these numbers and how that can affect you.
What Is an Above-Average Credit Score?
An above-average credit score just means your credit is better than the average American credit score. This is important because to a large extent, lenders judge your credit compared to other consumers. After all, lenders need to do business with someone, so they want to understand which consumers are most likely to make their payments on time.
This peer group standard also matters because credit scores vary according to economic conditions. When the economy is getting stronger credit scores generally should rise. During a slowdown or recession, average credit scores are likely to fall.
As of June 2022, the average FICO score in the US was 716, which is in the “good” range. People with average credit are doing well enough to qualify for most kinds of credit and good interest rates.
If you have a credit score higher than 716, then, you have above-average credit. All things being equal, an above-average credit score should qualify you for most types of credit. Even so, your income, job stability, and debts also factor into lenders’ decisions.
What Are Prime and Subprime Credit Scores?
Another important measuring stick is the distinction between prime and subprime borrowers.
The categories “prime” and “subprime” categorize risk from the lender’s point of view. Prime borrowers are statistically most likely to make their payments on time. Lenders also expect that most subprime borrowers will make their payments, but there is a significant risk that some of them won’t.
According to TransUnion research, consumers with the highest credit scores have a .15% chance of defaulting (going 90 days past due) on accounts, while those with the lowest have a default rate of 46.33%. That’s almost 309 times more likely than the top-tier consumers!
To compensate for that risk, lenders charge subprime borrowers higher interest rates. They may also require bigger down payments on loans and impose stricter requirements like lower debt-to-income ratios.
In other words, if you’re a subprime borrower, you’ll have a harder time qualifying for a loan and will probably pay more if you do qualify.
The definition of subprime varies according to economic conditions. Also, the willingness of lenders to consider subprime applications changes depending on how optimistic they are about the economy.
What is a subprime credit score? According to the Consumer Financial Protection Bureau (CFPB), credit scores break down as follows:
Deep subprime (credit scores below 580)
Subprime (credit scores of 580-619)
Near-prime (credit scores of 620-659)
Prime (credit scores of 660-719)
Super-prime (credit scores of 720 or above)
That would make anything under 620 subprime. Most mainstream non-government mortgage programs require a minimum 620 credit score.
What Is a Good Credit Score?
Falling into that subprime credit range means you may still have a shot at getting credit, but you almost certainly won’t get the best terms.
In order to increase your chances of qualifying for credit and getting better interest rates and other terms when you do, you need to aim higher than a subprime credit score.
To have good credit you would need a credit score of 670 or better (and that would still be below-average). Even once you reach that level, there is room for improvement.
Using the FICO credit score model, here are three tiers of prime borrowers:
670 to 739: Good credit
740 to 799: Very good credit
800 and above: Exceptional credit
What difference does it make whether your credit is good, very good, or exceptional?
As you move from good credit into those higher credit tiers, you may enjoy additional benefits like:
Lower interest rates
Smaller down payment requirements
Qualification for the best rewards credit cards
The point is, that you should shoot for having a good credit score, but once you get there don’t stop trying to raise your score. Things only get better if you do.
How to Get a Good Credit Score
What are some things you can do to get a good credit score? Here are some tips:
Make all your payments on time and in full. If you’re struggling with this, work on budgeting to better plan your expenses. You might also consider debt consolidation to organize your payments and make them more affordable.
Use credit consistently. Credit isn’t to be avoided -- you can’t have a good credit history unless you use it regularly to prove that you pay on time consistently.
Don’t overuse your credit. While consistent credit use is important, carrying high balances makes you look overstretched. The key here is to use credit but then promptly pay back what you owe.
Pick your spots when it comes to applying for new credit. Opening up a lot of credit accounts at once could raise concerns that you might get overextended. Even having a lot of credit inquiries in a short period of time can be a warning sign.
Don’t be too hasty about closing accounts. If you’re consolidating debt or cutting down on spending, you may decide not to use certain credit accounts for a while. That’s good, but it doesn’t mean you have to close them (unless you have an overspending problem). Older credit accounts help your credit score. Also, closing accounts reduces your amount of available credit and increases your credit usage ratio – which causes your score to drop.
Achieving good credit is not a one-time goal. Once you get good credit, you could benefit from continuing to improve into the very good or exceptional credit tiers.
Also, good credit needs to be maintained and protected. Your current information and recent history have a huge impact on your credit score, so you must continually practice good credit habits to keep your credit score high.
What is a good credit score to buy a house?
You may be eligible to apply for an FHA mortgage with a FICO score as low as 500, but it’s extremely difficult to get approved with a score that low. Most conventional (non-government) mortgage programs set minimum scores at 620, and most successful applicants have scores closer to 700. The best loans and terms go to borrowers with credit scores over 740.
Does the difference between good credit and excellent credit matter?
A credit score doesn’t just make the difference between qualifying or not qualifying for credit. It also impacts the terms you get. So, even though a good credit score might qualify you for financing, an excellent score could save you money. For example, many credit card offers show a 10% difference between their highest and lowest interest rates – for example, 16% to 26%. When it comes to mortgages, even small differences in rates add up to a lot of money over a 30-year loan term. That’s why the difference between good and excellent credit scores matters.
How can I find out my credit score?
If you have a credit card, start by looking at your latest bill. Many credit card companies are now providing this information with each statement. There are also several websites offering free credit scores, though be careful about what information you have to provide in order to get your score. Another approach would be to talk to a credit counselor. That could not only help you find your credit score but also learn how to improve it.