What is Considered a Good Credit Score

By
Real Estate Agent with RE/MAX Executive Realty 91362

How and Why You Want Great Credit Scores

Are you looking to improve upon your credit score? If so, you are being very wise, as they affect so many aspects of our lives from a financial perspective. A good credit score is important when you are looking to buy or rent a home.

Lenders and landlords use credit scores to judge whether you will be an acceptable risk. But what is a good credit score?

Let's take a look at what is considered good and how you can achieve it. The quicker you improve your credit scores, the better off you will be done the road when it really matters.

What is a Good Credit Score?

Credit scores range between 300 and 850. If you have a score above 700, this will be considered good. An exceptional score is above 800 and will give you access to the best interest rates and offers from lenders. The higher your score is, the more confident a lender will be that you present a low risk to them.

Credit scores are used for many different situations, not only when buying or renting a home. Therefore, it is important to make sure your credit score is as good as it can be so that you pay less interest on any loan you take out.

What to Know About FICO Credit Scores

The FICO scoring system, created by the Fair Isaac Corporation, is probably the credit score most people think of when the subject is mentioned. It is used by many lenders, and the credit scores range from 300 to 850, with 670 being considered good.

With a score between 300 and 579, you may find it difficult to be approved for credit or have to pay an additional fee. This is considered an abysmal rating, and around and around 16% of people fall into this category.

A fair rating is a score between 580 and 669. If you try to get a mortgage, you will be seen as a subprime borrower if you have this score, and 17% of people find themselves in this situation.

With a FICO score of between 670 and 739, you fall into the good category. You will find it easier to get credit with a score in this range, and over 20% of U.S. citizens fall into this classification.

Between 740 and 799, you are rated as very good. A quarter of people applying for credit are in this range, and they are likely to get better interest rates as a consequence.

With a score between 800 and 850, you are given an exceptional rating and will get the best interest rates from lenders. 21% of people fall into this range.

What to Know About VantageScore

A less well-known credit scoring system is VantageScore. It was developed by the three best-known credit bureaus, Equifax, Experian, and TransUnion. The most up-to-date version of this scoring system also uses a range between 300 850 to classify applicants.

You won't be very likely to get approval for credit with a score below 499. This is considered very poor, and 5% of people fall into this range.

A score of between 500 and 600 is still considered poor, which affects 21% of people. While you could still get credit with a score, these low-interest rates are not likely to be favorable. The lender may also need you to pay a larger down payment as well as having other conditions.

A fair rating is considered to be someone with a score between 601 and 660. While you might be approved for credit, interest rates won't be particularly competitive.

The largest group of Americans, around 38%, fall into the good category of between 661 and 780. You stand an excellent chance of being approved for credit with competitive rates if you are in this range.

Anything above 781 will put you in the excellent rating category. This will give you access to the best rates and best terms when looking for credit. The three credit bureaus: Equifax, Experian, and Transunion, use slightly different financial data to analyze consumers.

Why Are Credit Scores So Important?

Credit scores are sometimes referred to as risk scores. This is because they are used to determine how likely it is you are going to repay the loan.

The best way of determining how someone will act in the future is to look at how they have acted previously. If you have a past that is full of missed payments and bad credit decisions, it is expected you will continue this pattern. This gives lenders an easy way to discover if you will be high risk or not.

Credit scores aren’t the only factors that affect the decision by the lender, however. Your debt to income ratio is something else that is also looked at to determine if you are going to be a safe risk or not. Lenders will use your credit score as part of their central decision of granting a mortgage preapproval.

The credit score you need to buy a home will depend on the mortgage program and lender you use. Some mortgage programs are less strict about credit scoring than others.

It is vital to know this when your credit scores are below average. An excellent mortgage broker will counsel you on what programs will work best for your situation.

You will also have trouble renting an apartment when you have bad credit as well. Hopefully, you are getting the picture on just how powerful a credit score can be.

Factors that Impact Your Credit Score

Your payment history plays the biggest part in influencing your credit score with both scoring systems. You need to avoid late payments if you want to have a good credit score.

The credit accounts you have, how old they are, and the amount you use them also plays a big role in making up your credit score. The amount of debt you have is also something that is a fairly large part of your credit score.

Less important factors that can affect your overall score include newly opened credit accounts and hard inquiries on your credit report.

Factors that Don't Alter Your Credit Score

Your race, religion, age, location, or origin, cannot be used in credit scoring formulas. They also aren't allowed to consider your gender or marital status in the credit score calculation.

Your employment doesn't factor in the credit score either. Though a lender may look at this when deciding on your application.

Any soft inquiries on your credit report aren't factored in either. These are different from the hard inquiries that will be made when you apply for credit.

How Can I Improve My Credit Score?

If you aren't happy with your credit situation, you can do a few things to improve it.

One of the biggest things you can do is to make sure you make all your credit payments on time. If you have any liens or bankruptcies in your financial history, dealing with these will improve your score.

Reducing the amount of debt you have is also a good idea. You want to avoid using all of your available credit, sticking to around 30% utilization of your maximum borrowing is advised.

Check on Your Credit Scores

When you have lofty goals, such as buying a home or a car, it is essential to keep track of your credit scores. By doing so, you will be able to have some checks and balances for improving them.

You can get a free credit report once a year from each of the three credit bureaus. A smart thing to do would be to get a credit report from each of the 3 companies every four months. That way, you can cover the entire year for free.

It makes sense to be vigilant about checking your credit report for errors, as they can negatively impact your scores. If you do find credit mistakes, you'll want to jump on getting them corrected immediately.

Final Thoughts on Good Credit Scores

Your credit score impacts so many aspects of your financial life. It pays to work on increasing your credit score as early as you can. Hopefully, after reading, you realize just how critical credit scores are in all aspects of your life. Those who pay attention to bumping up their credit scores will reap many benefits.

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Posted by

Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

Comments (28)

Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Denver Broker / Author / Advocate/Short Sale

Very good information, ... I like the way you break it down for simplicity of where your score may be categorized.  

Dec 30, 2020 09:05 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good afternoon Bill Gassett,

What an informative post on credit scores! I'm like Barbara Todaro anything over 800 and I'm feeling calm and responsible!

Dec 30, 2020 10:20 AM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi Bill Gassett - the debt to income ratio is certainly a factor that effects many even with good credit scores.

Dec 30, 2020 10:58 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

This explanation would be good to put in your Buyers Consultation packet . Thx for sharing

Dec 30, 2020 11:45 AM
Janice Zaltman
United Realty Group - Boca Raton, FL
South Florida Residential Real Estate

Have seen a lot of poor credit scores this year. Thankfully, have never seen one between 300-400. Real Esate Professionals need to educate their clients about credit before showing property.   

Dec 30, 2020 08:15 PM
Paddy Deighan MBA JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

a good friend owns a credit reapir company and he explained sceres....I inquired why the "average" score is consistently 678. He explained that it will likely always be that way because it is an estimate and a floatoing av3erage based on the theoretical estimate!!

Dec 30, 2020 10:43 PM
Stephen P. Panczak, MBA
Keller Williams Coastal Partners - Palm Beach, FL
Real Estate Agent, (561) 254-8098

A good overview of the credit rating system, needs to be understood by the client and sometimes requires us - as realtors - to explain in more details. Good job!

Dec 30, 2020 11:49 PM
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Thanks for all the comments and compliments on the article guys, much appreciated!

Dec 31, 2020 03:31 AM
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

Great Post!

Thanks for a great reference piece for when my clients ask...and they do ask.

Dec 31, 2020 07:03 AM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Great minds and all that, Bill... I also posted about credit scores earlier this week saying that perfect credit was not required to buy a home.

Dec 31, 2020 07:12 AM
Carla Harbert
www.LorainCountyHomeSales.com - Avon, OH
RE/MAX Omega: Lorain-Medina County Area

Credit Scores is critical in our world today, from getting the best rates on loans and even car insurance. Great points that you did excellent in covering. Thank you.

Dec 31, 2020 07:36 AM
Brian DeYoung
also affiliated with Howard Hanna - Ithaca, NY
The Realtor with personal investment background

very good information

Dec 31, 2020 09:13 AM
Richard V. Foster, Esq.
Nevada Perfect Homes - Henderson, NV
Broker (58356) - ABR/M, CREN, CRS, GRI, RRG, SFR

A often overlooked factor of utilization is not just overall; but the single account too. I have over $100,000 available credit on my cards. I wanted to take advantage of a zero % card and save some money on a large business purchase I had made, so I opened a new account that offered 0% for two years. That new card hit my credit by 10 points... no biggie. Just less than a month later the new account paid off all my other trade lines and consolidated the credit, keep in mind, NO NEW PURCHASES... This maxed out the new card to about 85% . . . And was my sole debt. This equated to a 100 point loss in my FICO. I went from a 780 to a 678. Three months later, wWhen I paid the card off, my score returned to normal.

Moral of this story, do not max out a single trade line or this will crush your score. Lenders want to see debt load shared; sharing the risk, lowers their risk!

The other factor to consider is average age of credit. DO NOT close that $500 credit card you opened 20 years ago in college. The age of the account helps raise your score. Every time I pay off another old student loan, and decrease my overall debt, my score responds by DROPPING 10 points. This is because the my average age of credit drops. Go figure.

Dec 31, 2020 09:37 AM
Bill Gassett

Richard what happened to you is the perfect example of what occurs with so many people. You think you know what should happen with credit scores, but quite often it's not what really does.

Jan 01, 2021 04:44 AM
Marney Kirk
Cummings & Co. Realtors - Towson, MD
Towson, Maryland Real Estate

Bill this is great information on credit. It is important for home buyers to understand what their credit score means for a mortgage!

Dec 31, 2020 10:02 AM
Anne Corbin
Long and Foster - Lake Anna - Spotsylvania, VA
Serving Lake Anna & Central Virginia

Definitely an article that should be highlighted this week. Very informative and helpful.

Dec 31, 2020 10:42 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

This is great advice for buyers and landlords and tenants. Thanks for sharing

Dec 31, 2020 12:01 PM
John Henry, Florida Architect
John Henry Masterworks Design International, Inc. - Orlando, FL
Residential Architect, Luxury Custom Home Design

Thanks very much for posting this.  Informative for all of us as credit is important for financial transactions, especially borrowing.

Dec 31, 2020 03:39 PM
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Thanks for all the comments on credit scores guys!

Jan 01, 2021 04:44 AM
Paula McDonald, Ph.D.
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

A very thorough post on this topic. Would be excellent for all clients to read.

Jan 01, 2021 05:26 PM
Greg Mona
eXp Realty - Scottsdale, AZ
Professional Real Estate Representation for YOU!

Very informative post, Bill. In working with buyers over the years, it is interesting how many of them had no idea what their credit scores were and were surprised when they received the results. I have found those in the 800 and up category seemed to know their scores more than those below that. Perhaps it was a badge of honor for them? Thanks for sharing this important information!

Jan 03, 2021 07:08 AM

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