What Is a Good Credit Score?

You've probably heard that you need a "good" credit score, but what exactly does that mean?

To achieve and maintain a healthy credit score, it's essential to understand how the different credit scoring models work and what makes a score "good."

Here's what you need to know to maintain a good credit score -- and why it matters.

What are the different types of credit scores?

While you'll receive a credit score from all three major credit bureaus (Experian, Equifax, and TransUnion), lenders use two major credit scores to determine your creditworthiness: FICO (Fair Isaac and Company) and VantageScore.

Both FICO and VantageScore offers scores ranging from 300 to 850. Your score is calculated by several different factors in your credit report that help lenders assess whether you're a reasonable lending risk.

What is a "good" credit score?

Given that 300 to 850 is a pretty big range, you're probably wondering where "good" falls. According to Experian,1 here's how FICO and VantageScore break down their different score ranges:

FICO:

• Very Poor: 300-579

• Fair: 580-669

• Good: 670-739

• Very Good: 740-799

• Exceptional: 800-850

VantageScore:

• Very Poor: 300-499

• Poor: 500-600

• Fair: 601-660

• Good: 661-780

• Excellent: 781-850

In other words, "good" means something slightly different for each of the major credit scores. But in general, a score that's at least 661 to 670 is considered good — and the higher the score, the better it is.

As of December 2020,2 the average FICO score for U.S. consumers was 711. If you're curious how you stack up against your peers, here are the average credit scores by age range, according to Experian:

• 18 to 23 years old: 674

• 24 to 39 years old: 680

• 40 to 55: 699

• 56 to 74 years old: 736

• 75+ years old: 758

Why do I need a good credit score?

Having a good credit score makes it easier to borrow money for your bigger life goals, like buying a car or a home. When you do need to borrow money, you'll have a broader range of lenders to choose from (enabling you to shop around) and generally lower interest rates. A lower credit score could leave you with limited choices and substantially higher rates.

Since a lower interest rate reduces your overall borrowing costs, this allows you to save for other goals — or stretch for that slightly more expensive home.

But it's not just lenders that are looking at your credit score. Landlords will almost always run a credit report before renting an apartment or home to you. The lower your credit score, the more risk there is that you will default on your rent. The best rentals typically go to applicants with higher credit scores, especially in competitive rental markets.

Your credit score can also come into play in some unexpected places. According to Consumer Reports, many car insurance companies will charge drivers with less-than-stellar credit significantly more3 than they charge those with very good or excellent credit. Their rationale: they believe credit scores are a good predictor of future insurance claims. (Several states, including Georgia, prohibit or restrict the use of credit score in insurance pricing.)

Some employers even use credit scores as part of the hiring process4 to evaluate candidates for positions that require you to manage financial matters. A poor credit history might indicate that you're not adept at managing money and therefore not the best fit for the position.

How can I get a higher credit score and keep it there?

Both FICO and VantageScore take many factors into account when calculating your score, including:

• Payment history.

• How much of your available credit you're using at a given time.

• How often you apply for credit.

Taking some simple, practical financial steps can help boost your credit score into the "good" range. Use these tips to shore-up your score and keep it there:

• Make your payments on time: Try setting up automatic payments for at least the minimum due to avoid missing a payment.

• Keep your revolving credit utilization below 30%: If you max out all your credit lines, lenders tend to think you aren't managing your debt well.

• Apply for credit sparingly: While one inquiry on your credit report won't likely impact your score, several inquiries in a short period (less than a year)5 can bring your score down.

Now you know what the two major scoring systems consider to be a "good" credit score. And if your score isn't there yet, don't worry. Small steps with your finances can bring your score up and get you settled into a good score that's ready and waiting when you need it.