What is a Good Credit Score Anyway?

By April 5, 2017Consumer Education

You checked your credit score – now what? What exactly does your number mean? Is your credit good, bad or somewhere in between?

Here’s the simplified answer: the higher the score, the better.

Of course, credit scores are a bit more complicated than that. Let’s take a closer look at what makes a credit score good or bad.

Credit Score Ranges

The three major credit bureaus use a mathematical algorithm to calculate your credit score, which is based on your credit history.

There are several different scoring models available, but VantageScore and FICO are the two most popular systems.

Both use a sliding scale, with numbers that range between 300 and 850.

Between the lowest and highest number is a series of breakpoints that indicate whether you have excellent, good, fair or bad credit – or somewhere in between.

Other scoring models are used by some creditors, including:

  • TransRisk New Account: 300-850
  • Experian National Equivalency Score: 360-840
  • VantageScore 3.0/TransUnion: 300-850
  • FICO 9: 300-850
  • Equifax: 280-850
  • FICO Industry Option: 250-925
  • FICO NextGen: 150-950

Credit Score Categories

Each creditor has its own definition of good and bad credit, and most have internal thresholds that applicants have to meet before being approved. With that said, most use the following guidelines to grade credit:

  • 750 and Higher: Excellent
  • 700-749: Good
  • 650-699: Fair
  • 550-649: Poor
  • 550 and Below: Bad

People rarely have perfect credit (an 850 rating), but it’s not uncommon to find people with scores below the 550 mark.

What’s the Difference between FICO and VantageScore?

FICO and VantageScore are the two main systems used to calculate credit scores.

What is FICO?

FICO stands for Fair Isaac Corporation. The company was responsible for establishing risk scoring back in the 1960s as a way for lenders to expand customer access to credit.

FICO is still the most popular scoring method used today in the United States. FICO and the three major credit bureaus each create their own scores.

In order to get a FICO score, you have to have at least one account that’s been open for at least six months, or a minimum of one account that’s been reported to the bureau within the last six months.

FICO scores range between 300 and 850, but there are also FICO scores for specific industries which range from 250 to 900. Industry-specific scores are used when applying for certain loans, such as a mortgage, car loan or a credit card.

What is VantageScore?

VantageScore is a relatively new scoring system that was created by the three major credit bureaus in 2006 as an alternative to FICO.

While the scale is similar to FICO, VantageScore uses different criteria to generate its scores. That’s why FICO and VantageScores are rarely the same.

VantageScore takes into account 24 months of historical activity, uses alternative data and also accounts for recurring payments, like utilities and rent.

Just as there are many versions of the FICO score, there are many versions of VantageScore. VantageScore 2.0, for example, ranges from 501 to 990.

TransUnion, Equifax and Experian Scores

Along with VantageScore and FICO, each of the major credit bureaus generates its own scores.

TransUnion’s scale is between 300 and 850. Known as TransUnion New Account Score 2.0, this model is designed to help financial institutions manage their existing accounts. Simply put, your score tells the lender whether you’re likely to default in the next 90 days.

Experian generates both VantageScores and FICO scores, which range between 300 and 850. In addition, Experian generates a PLUS Score, which ranges between 330 and 830. PLUS scores are not used by lenders, and is only designed for consumer use.

Equifax also generates VantageScores and FICO scores with a range of 300-850. The bureau also generates a National Equivalency Score ranging from 360 to 840. This score is used to help creditors analyze their portfolios and is not used when making lending decisions.

Okay, So What is Good Credit?

Do you have a good credit score, or are you just average?

Here are FICO’s ranges:

  • 800-850: Exceptional; 19.9% of people; applicants get the best rates.
  • 740-799: Very good; 18.2% of people; applicants get better-than-average rates.
  • 670-739: Good; 21.5% of people; just 8% of applicants in this range are likely to default.
  • 580-669: Fair; 20.2% of people; applicants in this range are subprime borrowers.
  • 300-579: Very poor: 17% of people; applicants in this range have trouble getting approved for credit.

Here are VantageScore’s ranges:

  • 750-850: Excellent; 30.3% of people; applicants get the best rates.
  • 700-749: Good; 12.6% of people; applicants likely to get competitive rates.
  • 650-699: Fair; 18.3% of people; applicants may be approved with higher interest rates.
  • 550-649: Poor; 34.1% of people; applicants may be approved, but rates will be unfavorable.
  • 300-549: Very poor; 16.7% of people; applicants in this range will have trouble getting approved.

If your credit falls in the fair to very poor range, don’t freak out. Sign up for a credit monitoring service, make a plan to fix your credit, and keep an eye on your score as it changes.

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