Credit scores, especially your FICO score, can help you achieve your financial goals. Your credit score is a factor in everything from home loans, car loans, interest rates you pay on a credit card, and even your career path going forward. Your credit score is used to determine just how “creditworthy” you actually are in the eyes of lenders, or how responsible you are in the eyes of potential employers.
But before we get ahead of ourselves, what is exactly a 'good' FICO score?
At Homebody, we're here to clarify this often misunderstood topic. In this article, we delve into the intricacies of credit scores, explore their significance, and actionable tips you can start using today. Let's dive in!
A FICO score of 670 to 739 is generally considered "good."
What each individual lender refers to as "good" can vary, but "good" often means a score in the upper 600s to mid-700s.
Here's a list of FICO score ranges:
- Exceptional: 800+
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
Now, let's explore how each range of FICO scores can impact you.
Having a good FICO credit score can come with a range of perks and benefits. Here are some of the advantages you might enjoy:
It's important to note that the specific perks you receive can vary based on individual lenders, service providers, and your overall financial situation.
Maintaining a good credit score can help you enjoy these benefits and open doors to various opportunities in your financial life.
Here’s how important a good credit score is to getting approved and what terms you can reasonably expect:
FICO range: exceptional
Likelihood of approval: high chance with best terms and rates.
Terms & rates: preferred rates and terms likely.
FICO range: very good
Likelihood of approval: likely approval with favorable terms.
Terms & rates: favorable rates and terms probable.
FICO range: good
Likelihood of approval: good chance with reasonable terms.
Terms & rates: moderate rates and chances of approval.
FICO range: fair
Likelihood of approval: approval possible, terms may not be great.
Terms & rates: higher rates and limited approval chances.
FICO range: poor
Likelihood of approval: limited approval chances, higher rates.
Terms & rates: limited options and high interest rates.
Credit scoring models use complicated algorithms that evaluate patterns in your credit report and determine how likely you are to repay your debts based on that information. These models weigh various other factors, such as payment history, credit utilization, length of credit history, and types of credit. The net result is your FICO score, a shorthand for just how creditworthy you are.
Let’s look at each component:
Payment history (35%): the record of timely payments plays the most significant role in your FICO score.
Credit utilization (30%): the percentage of available the credit limit you're using. Aim to keep this below 30%.
Length of credit history (15%): the longer your credit accounts have been active, the higher credit scores the better.
New credit (10%): this takes into account the number of recently opened accounts and the number of recent hard inquiries.
Credit mix (10%): a diversity of credit types (credit cards, mortgages, loans) can positively impact your credit score ranges.
Payment history (35%)
Credit utilization (30%)
Length of credit history (15%)
New credit (10%)
Credit mix (10%)
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Buying a house is a huge undertaking, and your credit score plays a crucial role in securing a mortgage.
While specific lenders might have varying requirements, a good FICO score for buying a house is generally considered to be around 620 or higher. However, to ensure better terms and lower interest rates, aiming for a score above 700 is recommended.
According to data from FICO, the average credit score for approved mortgage applications in the U.S. was 762 in 2023.
When it comes to buying a car, a good FICO score is also important for securing favorable loan terms. Generally, a FICO score of 660 or higher is often considered a good range for obtaining a car loan. However, to access better interest rates and loan offers, aiming for a score above 720 is advisable.
According to Experian's State of the Automotive Finance Market report, the average credit score for new car loans in the first quarter of 2023 was 733, while the average score for used car loans was 654.
When it comes to understanding credit scores, two prominent players in the field are FICO and VantageScore.
Both of these credit scoring models utilize a scoring range of 300 to 850 to evaluate your creditworthiness. They analyze your credit history and payment behaviors to determine how reliable you are as a borrower.
Although the specific algorithms used by each model are proprietary, both FICO and VantageScore take into account key factors that include payment history, credit utilization, length of credit history, types of credit, and recent credit activity.
The FICO score is a well-established and widely used credit scoring model. It's recognized by many lenders as a reliable measure of credit risk. FICO scores are calculated by considering your payment history, credit utilization (the percentage of available credit you're using), how long you've had credit accounts, the types of credit you have (credit cards, mortgages, etc.), and recent credit inquiries. FICO scores are commonly utilized by lenders when making decisions about lending, interest rates, and credit approvals.
VantageScore, on the other hand, is a more recent player in the main credit bureaus' scoring arena. It was created collaboratively by the three major credit bureaus (Equifax, Experian, and TransUnion). Similar to FICO scores, VantageScores also take into account payment history, credit utilization, length of credit history, types of credit, and recent credit activity. VantageScore aims to provide a consistent credit scoring system across all three credit bureaus and is often used by creditors to assess risk.
Both FICO and VantageScore consider similar factors to determine your credit score, emphasizing the importance of responsible credit management. However, there are some differences in how these factors are weighted and interpreted in each model's proprietary algorithm. It's worth noting that some lenders may have a preference for using one model over the other based on their individual criteria and partnerships.
Being aware of the differences between FICO and VantageScore is important because it gives you a more complete view of your credit health. Monitoring your credit scores from both models can help you identify trends and take action if any discrepancies arise. Additionally, since lenders have the flexibility to choose which scoring model they use, having a solid understanding of both your FICO score and VantageScore can better prepare you when you're seeking credit.
Both FICO and VantageScore offer insights into your creditworthiness by evaluating your credit history and payment behaviors.
While they share many similarities, their proprietary algorithms and weighting systems differ.
Number of Americans with no credit history:
The average credit score by cohort:
Average credit score by age group:
Average credit score by generation:
Average credit score by income:
Percent of credit files that don’t qualify for a FICO score:
Percent of Americans who have a credit score of 800 or higher:
The average FICO score increase in the last decade:
Percent of adults who never check their scores:
Percent of adults who check their score monthly:
What is the highest credit score?
What is considered a perfect credit score?
What is considered a poor credit score?
What is considered a good credit score?
Percent of the U.S. population with a FICO score below 550:
Percentage of the U.S. population with a credit score over 700:
Highest and lowest FICO scores by state:
Credit score needed to buy a house:
Credit score needed to buy a car:
Note: sources cited from the following publishers:
It's advisable to check at least once a year. Many financial institutions offer free score checks for their customers.
Yes, but you might face higher interest rates and stricter terms compared to someone with a 'good' or 'very good' score.
Some employers check credit scores as part of the hiring process, especially for finance-related roles. However, they typically look for major red flags rather than a specific score.
The terms "FICO score" and "credit score" are often used interchangeably, but they can refer to slightly different things. FICO scores are a type of credit score developed by the Fair Isaac Corporation.
On the other hand, a credit score is a numerical representation of an individual's creditworthiness. Both FICO scores and other credit scores are used by lenders and insurers to assess the risk associated with providing credit or insurance.
Equifax considers credit scores between 670 and 739 to be good. This range reflects creditworthiness and increases your chances of qualifying for better lending terms and insurance rates.
Understanding the ins and outs of the FICO score can be a game-changer for your financial health. Striving for a good credit score not only offers peace of mind but also provides tangible financial rewards. Trust Homebody to help you navigate your credit journey with confidence!