What’s a Good Credit Score: 2012 Range, Credit Score Scale & Chart
Credit experts believe that a great score is 760 or above. They say a good credit score is 720, while noting there is very little need to raise a score above that. A score of 680 is still considered good…If you need something you’ll get it. It just may not be at the interest rate you want.
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Credit Facts:
60% Of Scores Are Over 700
Understanding what a good credit score is requires understanding how the scores are calculated. Credit scores are 3 digit numbers that are calculated according to a mathematical formula with the information in your credit report and how it compares to millions of other people. The number predicts how likely, or unlikely, it is that you will pay your bills. There are three different credit scoring models most often used by lenders to decide whether or not to extend an individual credit, but the most commonly used credit score is the FICO score.
FICO scores rangebetween 300 and 850. The general American public credit scores fall on a bell-shaped curve, with most people having credit scores that fall in the center, as follows:
Credit Scores From Different Credit Reporting Agencies
There are three credit bureaus which keep information on file about your financial history and activity: Equifax, Experian, and TransUnion. Lenders contact one or more of the credit reporting agencies when deciding whether to extend you credit, to get your credit score and copy of your credit report. While the scores from each credit bureau may be slightly different and have different names, they are all developed with software from Fair Isaac, the developer of the FICO score.
- Credit Bureau FICO Score
- Equifax BEACON Score
- TransUnion EMPIRICA Score
- Experian Experian/Fair Isaac Risk Model
How FICO Credit Scores are Calculated
Different activities carry different weight in the calculation of your credit score. Here’s the break down of your score:
Your Payment History: 35%
The most important consideration in the formula for credit score calculation is how you pay your bills. Your credit score considers how you have paid your bills over time, but your most recent activity is more important than years gone past. If you pay your bills late frequently, you’ll have a lower credit score than someone who pays their bills on time.
Debt and Available Credit: 30%
The second most important consideration in credit score calculation is how much money you owe in comparison to how much credit is available to you. This is your debt to credit ratio, and if you have used all of the credit available to you, lenders consider you riskier than someone who has managed their money better and kept their debt low in relation to how much they could be spending. A good rule of thumb is to keep your debt within 30% of your total available credit for the highest credit scores.
How Long You Have Had Credit: 15%
The longer you have had credit, the better your credit score. This is because lenders have a longer period of time to review your payment habits.
What Types of Credit You Have: 10%
Credit scores are higher for individuals who have a mix of different credit types than for people who have just credit cards, for example. Having an installment loan, a credit card, a mortgage and a car loan is considered a good mix of credit and shows you can manage a variety of credit types.
Frequency of Credit Applications: 10%
If you are filling out applications for credit cards and loans every other day, you’re going to have a lower credit score than someone who isn’t applying for credit. This is because applying for credit frequently makes creditors wonder if you’re in some sort of financial emergency and need access to money – so the more you apply for credit, the lower your credit score will be.
Credit Score Chart & Range:
- 499 or Less (2% of Pop) Horrible
- 500-549 (5% of Pop) Worst
- 550-599 (8% of Pop) Bad
- 600-649 (12% of Pop) Poor
- 650-699 (15% of Pop) Okay
- 700-749 (18% of Pop) Great
- 750-799 (27% of Pop) Excellent
- 800 or more (13% of Pop) Best
How Credit Scores Affect Your Interest Rates
Not only does the credit score help a lender decide whether or not to approve your application for credit, but it also plays an important role in how much interest you pay on the money you borrow. The following is an example of how your FICO score might affect mortgage interest rates, but keep in mind each lender has it’s own credit tiers and interest rates:
- Credit Score – Interest Rate
- 500-579 – 9.494%
- 580-619 – 8.583%
- 620-659 – 7.096%
- 660-699 – 6.286%
- 700-759 – 6.002%
- 760+ – 5.780%
If a lender is offering their best rates to borrowers with a score of 760 or better, and your credit score is 758 – those two points can cost you thousands of dollars in interest over the life of the loan.
Raising Your Score:
You Can Raise Your Score in as Little as 4 to 6 Months By Following These Two principles:
- You Can Quickly Raise Your Score By Paying Down Balances (some experts believe to keep your balance about fifty-percent of max limit)
- Another Way to Boost Your Score is to Pay On Time (which will have the biggest impact)
Other Tips on Raising a Credit Score:
- Some experts think paying more than the minimum credit card payment can actually help by causing your month-to-month debt not grow.
How to Improve Your Credit Score
Once you know what your credit score is, you may decide you need to increase it. There are a number of steps you can take to improve your credit score, but many will require patience as the score doesn’t increase over night when you implement these steps:
Pay Your Bills On Time – the most effective way to increase your credit score over time is to consistently pay your bills before they’re due.
Pay Down Debt – if you currently have debt, focus on paying it down or paying it off completely. As you reduce the amount of debt you owe, you will increase your available credit in relation to what you owe – which is a factor in calculating your credit score. The lower your debt in relation to the amount of credit available to you, the higher your credit score will become.
Correct Mistakes – it’s a good idea to review your credit reports from each of the three major credit reporting agencies (TransUnion, Equifax and Experian) annually to make sure there are no errors. You can get a free report once each year from each of the agencies at FreeAnnualCreditReport.com. If you find any errors, make sure to follow the instructions of the credit reporting agency to have them corrected.
Don’t Apply for Additional Credit – while you are working on increasing your credit score, avoid applying for new sources of credit. Each time you apply for credit, it counts as an “inquiry” and will decrease your score.
Credit Scores and Credit Cards
Good credit scores for credit cards start at 620 for approval, but better interest rates and credit cards are offered to people who have credit scores above 720 (Credit Score Needed for Credit Cards). If you are unable to qualify for a credit card, you can consider a secured credit card for people with low credit scores. Secured credit cards require that you put a deposit down as collateral, but the credit card company will report your on-time payments to the credit bureaus which makes it possible to use the secured card to start increasing your credit score.
Do You Have a Good Credit Score?
Good Credit Score to Buy a House
Credit Score Needed to Buy a Home (and Mortgage)
Credit Score Needed for a FHA Loan
What is a Good Credit Score for a Car Loan
Each lender has their own set of criteria for what makes a “good” credit score. The range of credit scores that are considered good enough for various types of credit will change based on the condition of the economy, too, so the score that was considered “good” two years ago may not still be considered “good”, today.
With all types of lending, the lower your credit score, the higher your interest rate will be. It’s always in your best interest to improve your credit score as much as possible to get the best rates and qualify for credit.
A good credit score for buying a car is generally in the 700 range, although you can probably qualify for higher interest car loans with scores above 620.
You will probably need a 730 or higher credit score needed to buy a house and qualify for a traditional mortgage program, but there are often specialty mortgage programs for individuals with credit scores as low as 650.
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