Good credit can open many doors for you, including lower interest rates and an easier time getting approved for credit cards or loans. But what counts as a “good” credit score depends on the scoring model. The most common credit scoring models are FICO® Score and VantageScore®, and while they’re similar, there are some distinct differences between the two.
Here’s what to know if you’re wondering about good credit scores and why building your credit is a worthy endeavor.
Credit scoring models have different ranges and formulas, which means “good” credit varies depending on the company providing your score. Here’s how the scoring models differ.
The FICO scoring model considers these factors when determining your credit scores:
-
Payment history: Your payment history accounts for 35% of your FICO score, so prioritizing on-time and in-full payments is crucial.
-
Amounts owed: Amounts owed, or your total debt relative to your available credit, also make up a significant portion of your FICO score — 30%.
-
Length of credit history: The length, or average age, of your credit history accounts for 15% of your FICO score. A longer history is generally better.
-
Credit mix: Credit mix, or the types of credit you have, makes up 10% of your FICO score. A healthy mix of various credit types is generally better.
-
New credit: New credit, or any accounts you’ve opened recently, account for 10% of your FICO score.
FICO scores can range from 300 to 850, with 850 being the best possible credit score you can have. Good credit under the FICO model falls within the 670 to 739 range, while anything above that is considered very good or excellent.
The VantageScore 4.0 model considers these factors when determining your credit scores:
-
Payment history: As with FICO, your payment history plays a major role in your VantageScore, accounting for 41% of your score.
-
Depth of credit: VantageScore combines both the age of your credit history and your credit mix into one scoring factor, which makes up 20% of your score.
-
Utilization: The amount of available credit you’re using accounts for 20% of your VantageScore.
-
New credit: Recent applications for new credit make up 11% of your VantageScore.
-
Balances: VantageScore also considers your current balances, which account for 6% of your score.
-
Available credit: Available credit makes up 2% of your VantageScore.
Like FICO scores, VantageScores range from 300 to 850, with a good VantageScore falling in the 661 to 780 range. Anything above that is considered “super prime,” or excellent.
It can take time to build good credit, but it’s worth the wait. Good credit has several benefits, including more plentiful choices for housing, credit cards, and lenders. Property managers, credit card companies, and lenders will view you as less of a risk if your credit is good.
Property managers typically look at your credit when you apply for a new apartment, and a stronger credit history means they may be more likely to approve your application. Likewise, when you apply for a loan or new credit line, your lender or credit card issuer will conduct a hard credit pull and review your credit history and scores. Applicants with better credit are more likely to get approved for financing, and they’re also more likely to get lower rates. Depending on your state, your credit could also affect your insurance rates.
Read more: 6 benefits of a good credit score
1. Make payments on time and in full
Your payment history has a major impact on both your FICO Score and VantageScore. If you’ve missed a credit card payment before or paid a loan late, focus on developing stronger payment habits. A history of responsible payments could result in better credit.
Likewise, you’ll also want to focus on paying down your existing debt, especially if you’re using a large portion of your available credit. Ideally, your credit utilization should be under 30%, but the lower it is, the better. Amounts owed and credit utilization play a big role in your credit scores.
Read more: How to pay off credit card debt
If you’re planning to apply for a loan or credit line soon, avoid opening other new accounts beforehand. Each time you open a new credit account, your card issuer or lender pulls your credit, which causes a slight dip in your score. Opening several new accounts right before applying for an important loan or new card could make you a higher-risk borrower in the eyes of creditors.
Having a healthy credit mix, or multiple types of credit and loan accounts, may work in your favor. It shows you’re able to manage multiple account types successfully. Both credit age and mix have a fairly significant impact on your credit score.
Read more: What is credit mix, and how does it affect your credit score?
Improving your credit translates to more — and often better — opportunities. Whether you’re looking for a new apartment, insurance policy, loan, or credit card, a good or excellent FICO or VantageScore could mean lower rates and more options. Fortunately, if your credit needs work, you can improve it.
This article was edited by Alicia Hahn.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
