What is Good Credit? A Look at the Credit Score Range and its Impact on Your Terms and Rates

When I come across the term “good credit,” it sounds to me like getting a pat on the back for behaving well. Back in grade school, credit meant gold stars for doing something admirable. But now, we’re all grown-up and know that credit isn’t child’s play. 

Your credit rating can be your best friend or worst nightmare — at least in the financial arena.

Good credit is typically a FICO score between 670 and 739, which provides access to attractive financial products with low interest rates and generous rewards.

Good credit is a credit score a couple notches below the very best. Creditors offer attractive terms and conditions for borrowers with good credit. That means great credit cards and low-interest loans.

Let’s dig into how you build a good credit score and successfully maintain it.

Ever wonder why your credit score is so important? It’s simple: A credit score is basically the report card of your financial life. It helps creditors know how much they can trust you with their money. The better your score, the better the deal you get in terms of lower interest rates and increased borrowing power.

Credit ratings are represented by specific score ranges in the 300 to 850 scale used by the two major scoring systems — FICO and VantageScore. 

FICO denotes scores in the 670 to 739 range as “good.” That’s two ranks below the top category, “exceptional.” 

In contrast, good credit is the penultimate VantageScore range, spanning scores of 700 to 749. As I’ll go over in a minute, this is just one of several differences between the two scoring systems.

The Purpose of Credit Scores

Your credit score is something of a crystal ball to lenders. It helps them assess your likelihood of defaulting on your debt in the next couple of years. Lenders use these scores to decide whether you’re a safe bet or a dicey gamble. The higher your score, the less likely you are to leave them high and dry – and therefore the more likely they are to extend sweet terms to you.

Good credit scores might not land you on Park Avenue, but they will put you on solid ground. You’ll be in line for low interest rates and respectable credit limits.

If you want to improve your score, you first need to understand where exactly you stand and what it’s going to take to make your move up the credit ladder. 

There are definitely clear paths for setting improvement goals. As you’ll see, these paths depend on what factors the major scoring systems look at to determine scores.

FICO is the grandfather of credit scoring models and the one most lenders turn to when making decisions based on a credit score. Five key factors go into your score, combining to draw the big picture of your creditworthiness.

1. Payment History (35% of Total Score)

Your payment history carries the most weight with your FICO score. It originates from your bill-paying history, and it lets creditors know how responsible you are with credit. 

Score killers include late payments, missed payments, and accounts sent to collection. If you always pay on time, your score should increase and reassure potential creditors.

2. Amounts Due (30%)

The second most important factor is how much you owe across all of your credit accounts. For credit cards, this factor includes credit utilization ratio (CUR), which is how much of your credit limit you are currently using. 

Here is an example credit utilization calculation for someone who owns three cards with credit limits that add up to $10,000:

When you are using a big chunk of your available credit, it sets off alarm bells for creditors, who worry you might be overextended. 

That’s why CUR ratios above 30% can dent your credit score. Keeping your balances low, relative to your credit limits and your income, carries the day in coaxing your score upward.

3. Credit History Length (15%)

A less important factor is how old your credit accounts are. The older the account, the better it is for your score since creditors can form more accurate conclusions about your behavior. 

FICO looks at the age of all your accounts, including the oldest, the newest, and the average age of all your accounts. You can help your credit score by keeping old accounts open and using them from time to time.

4. Credit Mix (10%)

FICO also evaluates your mix of debts: revolving credit, installment loans, store credit cards, etc. In short, a diverse blend proves that you manage many types of debts responsibly, and that should boost your score.

5. New Credit (10%)

New credit is a measure of hard inquiries that occur when you apply for a new credit card or loan. By applying, you give permission to the creditor to pull your credit report from one or more credit bureaus. Hard inquiries remain on your credit reports for two years. They may lower your score a little during the first year.

But applying for too many new accounts in a very short period implies that you’re taking on too much debt too quickly, and that naturally inflicts more damage on your score. The only exception is when you’re rate-shopping for competing loans, like mortgages or car loans. These constitute a single hard inquiry.

FICO Scores 

FICO scores range from 300 to 850. The higher the number, the better the credit risk. Not sure how to break the numbers down? Here are the figures to help you out:

• Poor (300-579): You’ll have a very hard time getting approved for credit, and if you do, prepare for some high interest rates.

• Fair (580-669): You won’t get the best terms, but you’ll likely get approved for most types of credit.

• Good (670-739): You fall into the category of low-risk borrowers. You’ll get access to better interest rates and are likely to have more favorable terms.

• Very Good (740-799): You will have more opportunities to qualify for high-quality credit terms.

• Exceptional (800-850): The score signifies the very best tier of credit.

The average credit score in the U.S. remains between 715 and 725, squarely in the “Good” category. If you are a credit newbie, be prepared for your beginning FICO score to be lower. Mine certainly was, but that was a lifetime ago.

VantageScore is a newer player in the credit scoring market. It has managed to gain some traction with lenders, although it is used less than FICO. VantageScore uses the familiar 300 to 850 scoring range but adds a few unique twists. The score is composed of the following factors:

1. Payment History (40%)

The VantageScore model places greater emphasis on long-term payment history than FICO. This factor credits timely bill paying — a good history of paying bills on time will boost your score, while late or missed payments will drag it down more so than in the FICO model.

2. Credit Depth (21%)

This factor considers how long you have used credit and your different types of credit accounts. It has less impact than the sum of FICO’s Length of Credit History and Credit Mix. Your long history and a wide variety of credit accounts will help your score, while a short, sparse history hurts.

3. Credit Utilization (20%)

VantageScore has credit utilization as a separate category apart from other amounts owed. This, of course, should ideally be under 30%. You want it to be as low as possible because high utilization signals overdependence on credit.

4. Balances (11%)

This factor is defined as the total amount owed on all your accounts. It is the counterpart of the FICO Amounts Owed, except that it excludes credit utilization. 

Unlike the FICO factor, which includes credit utilization ratios, VantageScore uses real dollar balances in Balances. High balances could drag down your score, even if utilization of those balances remains relatively low.

5. Recent Credit (5%)

This factor is sensitive to how many new accounts you have opened recently. Similar to the FICO New Credit factor, this category may lower your credit score if you apply for multiple accounts in a short period. However, VantageScore is less sensitive to this factor.

6. Available Credit (3%)

This factor doesn’t have an exact equivalent in the FICO system. The factor takes into consideration the total sum of credit available for you regardless of your utilization. Still, it has little impact on your score. 

Getting more credit can improve your credit score to a small extent.

VantageScore Scores 

VantageScore ratings also range from 300 to 850. While the endpoints are the same, VantageScore divides its range differently:

• Very Poor (300-499): A credit score within this range has an extremely poor prospect of approval for most forms of unsecured credit.

• Poor (500-600): You have a moderate chance of being approved but with not-so-good terms.

• Fair (601-660): Approval is likely, but with average terms that could be better.

• Good (661-780): Low interest rates and attractive terms await you.

• Excellent (781-850): You have an extraordinary credit score and should be able to qualify for the best rates and products.

These score categories are similar in practice to FICO’s. You should expect similar scores in both systems, though they will seldom match exactly.

Other Differences

VantageScore and FICO aren’t identical when it comes to assessing certain debts. Here’s how they differ:

• Medical Debt: VantageScore cuts you some slack in medical bills, ignoring them for six months to let you sort things out with insurance. FICO still counts them from the very beginning once they hit your report but then ignores any collections that you’ve paid off.
• Trended Data: VantageScore monitors how you have behaved regarding credit over your entire history to measure if you’re paying down balances or just barely making the minimum payments. Older versions of FICO don’t do this. However, FICO 10T does, though, at this time, it is less popular.
• Non-Traditional Data: VantageScore considers non-traditional data such as utility and rent payments, whereas FICO mostly focuses on credit cards and loans. The newer versions of FICO have started to incorporate rent and utility bills into the scoring model.
• Hard Inquiries: Both VantageScore and FICO treat multiple inquiries in quest of mortgages, auto loans, or student loans within a short period as one inquiry. While VS uses a 14-day window, FICO allows a span of 14 to 45 days, depending on the version.
• Personal Loans: FICO 10 puts greater weight on personal loans, especially if you use them to consolidate credit card debt. However, if you subsequently rack up new credit card balances, your score will drop like a hot potato, a change from the older FICO versions.

These various quirks mean that your credit score can swing depending on whether a lender is using VantageScore or FICO to grade your creditworthiness.

Good credit may not be the winning ticket at the county fair, but it should get you a front-row seat to the best rides and games. 

Think of good credit as the key to attractive rates and easy loan approvals. You will be grinning like a kid with a new bike when terrific credit card offers and loan terms roll in.

It is not just about the numbers: Good credit can bring you a financially solid lifestyle in which creditors will give you the nod for deals that will make your wallet happy.

Easier Approval for Credit Cards

Good credit will shoo the naysayers away when you apply for credit cards. Need a solid card with decent perks?

With good credit, issuers are more likely to invite you aboard, knowing that you are less likely to leave them in the lurch. 

While you won’t have every door swung wide open, good credit grants entry to most cards, with higher credit limits and better card options on offer.

You won’t be charging a new Cadillac on your card, but you will have the freedom to get credit when you need it.

Lower Interest Rates

One of the best perks of good credit is the lowering of interest rates.

Whether it be through a loan or credit card, good credit means that lenders are likely going to give you reasonable rates, because they believe you will pay them back without a hitch.

Over the years, you will save a nice chunk of change.

With lower interest rates, you can borrow money to purchase that house or car without feeling like you’ve been taken for a ride.

You might not be laughing all the way to the bank, but at least you’ll be smiling.

Better Loan Terms

Good credit can get you very nice terms on loans, just ask those with better than good credit.

Lenders are much more apt to sweeten the deal just a bit, maybe offering lower fees or a better repayment plan that fits your needs.

You may not have gold-plated credit, but good credit gets you treated like someone who knows how to take care of their money.

You can easily find loans with terms that won’t put you between a rock and a hard place.

If you’re tuning to BadCredit.org, that usually means you’re trying to give your credit score a boost. Building good credit isn’t just about the numbers on a screen; it means working toward your financial freedom and peace of mind. 

Let’s take a stroll through some smart practices to improve your credit score: Paying on time, managing credit use, obtaining a secured credit card, and keeping a watchful eye on your credit reports.

Make Payments on Time

Rule number one about credit is simple: Never pay late. Your history of payment is the backbone of your credit score, and with each timely payment, your credibility builds up. If you want good credit, pay those bills on time, every time.

Miss a payment? If it’s more than 30 days overdue, it’ll hit your score like a weed in your credit garden. And the longer you leave it unattended, the worse it gets. Here is a timeline of what happens 30 days (and well beyond) after a missed payment:

So, nip those late payments in the bud before they do real damage. I advise you to set up automatic payments so that you don’t have to rely on your memory.

Collections and bankruptcies are the worst of them all because these really devastate your credit and take seven to 10 years to patch up. They tell lenders that you are a big risk. You will likely need more time to get approval for new credit or qualify for low interest rates.

Regularly Monitor Your Credit 

Make it a habit to check your credit reports frequently. This will help you catch fraud or errors before they become major problems. Credit monitoring services can be useful in alerting you to changes or suspicious activity. Some are free, but others charge a fee — sometimes, the peace of mind is worth the price tag.

If you find an error in your report, act quickly. It might be simply a mistake, or it could mean fraud. In either case, the sooner you act, the less likely you’ll suffer long-lasting harm. Contact the credit bureau and the creditor, attaching any documents that can support your dispute. 

By monitoring your reports, you can observe just how far your financial decisions help you score, thereby letting you know what adjustments to make to stay on track.

Don’t Get Too Close to Your Credit Limit

Another key to good credit is keeping your credit utilization in check. This means not maxing out your credit cards. When possible, try to keep your credit utilization ratio below 30% to give your score a fighting chance.

High balances indicate that you are relying too heavily on credit, and that doesn’t look very good to lenders. If your balance is high, you may want to consider a balance transfer or a consolidation loan to lower that number. Balance transfers allow you to transfer your debt onto a new card with a 0% APR for a limited time.

When you take out a consolidation loan, you repay your other debt and make one monthly payment, hopefully at a lower interest rate. This will lower your credit utilization ratio and ultimately raise your credit score, as long as you don’t use your credit cards to create new debt.

Use a Secured Card if You Have Bad Credit

If your credit looks more like a dirt road than the interstate, a secured credit card might be the solution to a smoother credit experience. 

A secured card is similar to the unsecured variety, except you first have to make a refundable deposit. That deposit establishes your credit limit — what you put down is what you can spend. Secured cards let you convince issuers that you can manage credit without causing them undue distress.

Here is a look at how secured credit cards compare with unsecured credit cards:

Using a secured card is like planting seeds in your garden of credit. Each on-time payment waters your plantings, and before you know it, your credit score will sprout. 

By starting modestly, you have every opportunity to join the ranks of consumers with good credit.

Tend to your card with on-time payments and low balances to get the biggest boost to your credit score. Eventually, you’ll graduate with an unsecured card and get your deposit back. 

Good credit is the key, dear reader, to the front door of all finer establishments in the financing world. Swing it open, and inside you’ll find all kinds of opportunities.

Whip your credit into good shape, and you will soon be waltzing into the swankiest places without missing a step.