What makes excellent credit

See site for more details. FICO is the oldest and most widely used credit score brand and uses a scoring range of to There are also industry-specific FICO scoring models that use a different scale. Auto FICO scores, for example, range from to They help lenders predict the risk of a borrower defaulting on a loan. The higher your score, the lower the risk you represent to anyone who lends you money. Launched in , VantageScore is a joint venture between the three major credit reporting agencies—Equifax, TransUnion and Experian.

VantageScores use a to credit score range. Although the FICO and VantageScore charts above display a general idea of how lenders may interpret different credit score ranges, lenders and other companies can, and often do, differ in their opinions of creditworthiness. Each lender has their own criteria for credit scoring as well as their own thresholds for a good score vs. Your credit score arguably matters more on a mortgage application than with any other type of personal financing.

With a mortgage, a good credit score might save you thousands of dollars in interest every year. With the higher score, you might qualify for an APR of 3. Because you improved your credit score from fair to good, you would save:. Of course, getting a great mortgage rate requires more than just a brag-worthy credit score. But the three-digit numbers sold alongside your credit reports are a key factor that mortgage lenders consider when you apply for financing.

Next to a mortgage, vehicles are often among the most expensive purchases the average adult makes in the United States.

According to the Kelley Blue Book, an independent automotive valuation agency, the average price for a light vehicle purchase in the U. A higher credit score might help you save even more. Like other lenders, credit card issuers will consult your credit score to determine the risk of doing business with you before approving you for a new credit card. If you want to open a premium travel rewards credit card , you may need good and perhaps even excellent credit scores to qualify.

Beyond qualifying for a credit card, your score can also have a significant impact on the APR and other terms of your account. Credit card issuers not only rely on credit scores to help them determine whether or not to approve applications, but they also use scores to set the pricing on the accounts they approve. Take this list of top credit cards , for example.

A card issuer might advertise an APR of The reason for that range is because the card issuer will base the final rate it offers you on the condition of your credit. Defining a specific number that a credit card issuer defines as a good score is tough for two reasons:. Keep in mind that any credit score that a lender calculates for you is based on the same data—the information found on your credit report.

So, if you focus on maintaining accurate, positive credit reports, your credit scores should be in good shape no matter who checks them and which scoring model the company uses. When you work hard to earn a good—or better credit score, the savings can be substantial.

The lifetime value of a good credit score can extend into the tens of thousands of dollars. That's extra money you could be putting toward your savings or other financial goals.

Additionally, credit scores can impact non-lending decisions, such as whether a landlord will agree to rent you an apartment. Your credit reports but not consumer credit scores can also impact you in other ways. Some employers may review your credit reports before making a hiring or promotion decision. And, in most states, insurance companies may use credit-based insurance scores to help determine your premiums for auto, home and life insurance.

To improve your credit scores , focus on the underlying factors that affect your scores. At a high level, the basic steps you need to take are fairly straightforward:. Other factors can also impact your scores. For example, increasing the average age of your accounts could help your scores. However, that's often a matter of waiting rather than taking action. Checking your credit scores might also give you insight into what you can do to improve them.

You'll also get an overview of your score profile, with a quick look at what's helping and hurting your score.

Credit scoring models use your credit reports to determine your score, but they can't score reports that don't have enough information. VantageScore can score your credit report if it has at least one active account, even if the account is only a month old.

If you aren't scorable, you may need to open a new account or add new activity to your credit report to start building credit. Often this means starting with a credit-builder loan or secured credit card , or becoming an authorized user. Your credit score can change for many reasons , and it's not uncommon for scores to move up or down throughout the month as new information gets added to your credit reports.

You may be able to point to a specific event that leads to a score change. For example, a late payment or new collection account will likely lower your credit score. Conversely, paying down a high credit card balance and lowering your utilization rate may increase your score. But some actions might have an impact on your credit scores that you didn't expect. Paying off a loan , for example, might lead to a drop in your scores, even though it's a positive action in terms of responsible money management.

This could be because it was the only open installment account you had on your credit report or the only loan with a low balance.

After paying off the loan, you may be left without a mix of open installment and revolving accounts, or with only high-balance loans. Perhaps you decide to stop using your credit cards after paying off the balances. Avoiding debt is a good idea, but lack of activity in your accounts could lead to a lower score.

You may want to use a card for a small monthly subscription and then pay off the balance in full each month to maintain your account's activity and build its on-time payment history. Keep in mind that credit scoring models use complicated calculations to determine a score.

Sometimes you might think one event caused your credit score to increase or decrease , but it was a coincidence for example, you paid off a loan, but your score actually increased due to a lower credit utilization ratio.

Also, a single event isn't "worth" a certain amount of points—the point change will depend on your entire credit report. A new late payment could lead to a large point drop for someone who's never been late before, for example, as it may indicate a change in behavior and, in turn, credit risk.

However, someone who has already missed many payments might experience a smaller point drop from a new late payment because it's already assumed that they're more likely to miss payments. Checking your credit score was once a difficult task.

But today, there are many ways to check your credit scores , including a variety of free options. Your bank, credit union, lender or credit card issuer may give you free access to one of your credit scores. The type of credit score you get can depend on the source. In either case, the calculated score will also depend on which credit report the scoring model analyzes. Some services even let you check multiple credit scores at once. Your score may be considered bad by one loan agency, but acceptable by another.

You can start by comparing your score to national averages. According to the Fair Issac Corporation FICO first introduced in , the following proportions of consumers have scores in the following ranges:.

FICO is not the only scoring model used in the credit industry. There are different types of credit scores. If your score has fallen into this range, improving your score is going to take some work.

Filing for b ankruptcy can bring a score down to this level. But if you continue to make your payments on time, your score should improve. There are certain types of loans, like home loans, that are hard to get with a score in this range, but there are still options for getting a mortgage with bad credit.

Although it is possible to qualify for credit , it is often at very disadvantageous terms you will pay much higher interest rates and penalty fees. If you find yourself in this range, you should begin to address any specific credit problems you have to try to boost your score before applying for credit. In the mids range, consumers become prime borrowers. This means they may qualify for higher loan amounts, higher credit limits, lower down payments and better negotiating power with loan and credit card terms.

Lenders are comfortable with this FICO score range , and the decision to extend credit is much easier. Borrowers in this range will almost always be approved for a loan and will be offered lower interest rates.

Most lenders would consider a credit score of the same as However, having a higher score can serve as a buffer if negative occurrences in your report. While every credit scoring model is different, there are a number of common factors that affect your score.

These factors include:. Each factor has its own value in a credit score. However, if you are in the market to purchase a house or loan, there is an annual day grace period in which all credit inquiries are considered one cumulative inquiry.

In other words, if you go to two or three lenders within a day period to get find the best rate and terms available for a loan, this only counts as one inquiry. This means that they are not all counted against you and will not affect your credit score.