A good credit score can be a welcome personal finance friend as you go through life. A score that’s good or better can open doors when it comes to loans and other forms of credit. It can also make it easier to get insurance, reduce the number of hoops you might need to jump through when ordering utility services, and even expand job options.
But what exactly is a good credit score and do you have one? And if your score is poor or bad, how can you improve it? Find out in the quick guide to good credit scores below.
A Brief Overview of Credit Scoring Models
Credit scores are calculated using credit scoring models. There are many models; the major two are FICO and VantageScore. To make things even more complicated, there are many types of FICO scores and VantageScore scores.
Numerous scoring models being used with slightly different information reported to each credit bureau can mean your score isn’t always the same when someone checks it. Your score with one model or bureau can be slightly different from your score with another, even if those scores are pulled at the same time.
For the most part, though, people’s credit scores tend to fall within a close range. If you check your scores with the three major credit bureaus (which are TransUnion, Equifax and Experian) and find that one is hundreds of points off of the others, it could indicate a mistake or other issue with your credit report at that bureau.
What Is a Good Credit Score?
A good credit score is one that falls within the range that is considered “good.” The exact breakdown of credit score ranges depends on which model you’re working with.
A good FICO score, for example, is typically one within the range between 670 and 739. Anything from 580 to 669 is considered fair, and anything below that is very poor. If your FICO score is 740 or above, it’s considered very good or exceptional.
A good VantageScore score is 661 to 780. Above that’s considered excellent and below that is considered fair, poor, or very poor depending on how far down you go.
What Difference Does Your Credit Score Make?
A good or better credit score indicates you’re someone who regularly pays their debts as agreed. Lenders see this as a sign of responsibility, which could make you a better investment for them than someone with a poorer credit score.
Because of this, people with good or better credit scores are more likely to get approved for credit in general. They’re also more likely to get offered competitive rates.
Does that mean you can’t get a loan or other credit if your score isn’t great? Not at all — many people can still get loans with bad credit. In fact, there are specific loans designed to help people with bad credit access funds and improve their credit. However, those loans tend to be less competitive as far as terms and rates.
Lenders aren’t the only ones that might look at credit reports. Auto insurance companies, utility companies, landlords and even employers could use your credit history (with your permission) to make a decision about whether to offer you a service, a lease or a job.
How Can You Improve Your Credit Score?
Good credit isn’t everything, but it is important. If you check your credit score and find it wanting—or you get denied for credit because your score is lackluster—you might wonder how you can improve it.
There’s no such thing as an overnight fix for your credit, so don’t let someone sell you a product or service that guarantees it. But there are things you can do to positively impact your credit over time, and some of them might make a difference in as little as a few weeks or months.
1. Check for Errors on Your Reports and Dispute Them
Start by pulling your credit reports with all three of the bureaus. You can do this for free at AnnualCreditReport.com once a year. You can also sign up for free and paid services that give you some access to your reports all year.
Review your reports and look for anything that’s inaccurate. Examples of errors might include:
- A payment reported as late that you made on time
- A collection account that doesn’t belong to you
- The wrong outstanding amount listed on a line of credit
If you see any errors, dispute them with the credit bureau. You do this by sending a letter that identifies the error and provides documentation and your reasons for asserting that the information is inaccurate.
You have a right under federal law to a fair and accurate credit report, so the bureau must act on these investigation requests. If the entity reporting the information can’t back it up, the bureau must correct or remove the information.
Getting inaccurate negative information from your report can help improve your score.
2. Get Credit for Paying Rent or Utilities on Time
Rent and utility accounts aren’t typically listed on credit reports. This is simply because landlord and utility companies generally don’t report those accounts and payments. You can pay for services such as LevelCredit to get those payments posted on your account. This might be an option to consider if you have no credit history.
3. Make Existing Debt Payments on Time
Ensure you’re paying existing debts as agreed. Timely payment on debts is one of the biggest factors on your credit score no matter what scoring model is being used.
4. Pay Down Existing Debts
Reducing the amount of debt you carry, especially on revolving accounts such as credit cards or lines of credit, can help improve your score. This is because all models take into account credit utilization — that is, the amount of your credit line you have already used. The lower it is, the better your overall score.
5. Get a Loan to Help Build Your Credit
Lenders such as Wise Loan provide products that can help people build their credit. You don’t need a great credit score to qualify for a loan, such as an installment loan, from Wise Loan. But when you make your payments on time, we report that positive behavior to the credit bureaus to help you build a better credit history. That can help you positively impact your score.
See if you qualify by applying with Wise Loan today.
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.
