What Is a Good Credit Score (and How to Get There)?

A good credit score opens doors to better interest rates, loan approvals, and even job opportunities. Read on for a better understanding of credit score ranges and implementing the right strategies to save thousands over your lifetime.

What Are Credit Score Ranges?

Credit scores typically range from 300 to 850, with different ranges indicating your creditworthiness to lenders. Here's how the major credit scoring models break down these ranges:

• Poor Credit (300-579): Scores in this range indicate significant credit challenges. Borrowers may struggle to qualify for loans or credit cards, and when they do, they'll face high interest rates and strict terms.

• Fair Credit (580-669): Fair credit suggests some credit management issues, but shows improvement potential. Many lenders will work with borrowers in this range, though terms won't be optimal.

• Good Credit (670-739): This is where most people should aim initially. Good credit scores qualify you for most loans and credit cards with reasonable terms. You're seen as a reliable borrower with manageable risk.

• Very Good Credit (740-799): Very good scores unlock better interest rates and premium credit products. Lenders compete for borrowers in this range, leading to more favorable terms.

• Excellent Credit (800-850): Excellent credit represents the top tier of creditworthiness. These borrowers receive the best available rates and terms on virtually all credit products.

Why a Good Credit Score Matters

A good credit score impacts multiple areas of your financial life beyond just borrowing money.

• Loan approval and interest rates: The difference between good and poor credit can mean thousands in additional interest. For example, on a $250,000 mortgage, the difference between a 4% and 6% interest rate equals about $125,000 in extra payments over 30 years.

• Insurance premiums: Many insurance companies use credit scores to determine premiums. A good credit score can lower your auto and homeowners insurance costs significantly.

• Employment opportunities: Certain employers, particularly in financial services, check credit scores during the hiring process. A good score demonstrates financial responsibility and attention to detail.

• Rental applications: Landlords increasingly use credit scores to screen tenants. A good score can be the difference between getting your dream apartment and facing rejection.

• Utility deposits: Utility companies may waive security deposits for customers with good credit scores, saving you hundreds of dollars when setting up new service.

Five Factors That Influence Your Credit Score

Understanding what impacts your credit score helps you make informed decisions about improving it.

1. Payment history (35%): Your track record of making timely payments is the most important factor. Even one late payment can significantly impact your score, while consistent on-time payments build strong credit over time.

2. Credit utilization (30%): This measures how much of your available credit you're using. Keeping balances below 30% of your credit limits is good, but below 10% is even better for your score.

3. Length of credit history (15%): The age of your oldest account, newest account, and average age of all accounts factor into your score. Longer credit histories generally result in higher scores.

4. New credit inquiries (10%): Each time you apply for credit, a hard inquiry appears on your report. Multiple inquiries in a short period can lower your score, as it suggests you might be taking on too much debt.

5. Credit mix (10%): Having different types of credit accounts, like credit cards, auto loans, and mortgages, can positively impact your score by showing you can manage various credit products responsibly.

Essential Habits for Building Good Credit

Developing consistent habits is the key to achieving and maintaining a good credit score.

• Pay all bills on time: Set up automatic payments for at least the minimum amount due on all accounts. Late payments stay on your credit report for seven years, so consistency is crucial.

• Keep credit card balances low: Aim to use less than 30% of your available credit across all cards, with under 10% being ideal. Pay down existing balances and avoid charging more than you can pay off quickly.

• Avoid opening multiple accounts quickly: Space out credit applications by at least six months. Only apply for credit when you genuinely need it, not just for promotional offers or rewards.

• Maintain older credit accounts: Keep your oldest credit cards open and occasionally use them for small purchases. The length of your credit history significantly impacts your score.

• Monitor your credit reports regularly: Check your credit reports from all three bureaus annually for errors. Dispute inaccuracies promptly, as they can unfairly lower your score.

Real-Life Credit Improvement Example

Here's how you could improve your credit score from 650 (fair) to 720 (good) in 18 months through consistent effort.

• Starting position: You have a 650 credit score due to high credit card balances and a few late payments from a difficult financial period. Your credit cards are maxed out at 85% utilization.

• Months 1-6: Foundation building: Focus on making all payments on time and creating a debt payoff plan. Pay minimums on all accounts while putting extra money toward the highest-interest card.

• Months 7-12: Utilization reduction: As balances decrease, your utilization drops to 45%, then 30%. Your score jumps to 680 as the lower utilization is reported to credit bureaus.

• Months 13-18: Fine-tuning: Continue paying down debt and get your utilization below 15%. Successfully dispute an error on your credit report. By month 18, your score reaches 720.

Key actions that make the difference:

• Set up automatic payments to ensure no missed deadlines

• Focus on paying down high-balance cards first

• Avoid opening new credit accounts during the improvement period

• Use credit monitoring to track progress monthly

Good vs. Excellent Credit: Pros and Cons

Tools to Monitor and Improve Your Credit

Free credit monitoring services: