What is a good credit score? (2024)

When you apply for new credit, such as a loan or credit card, your application for financing will almost always include a review of your credit score. Other applications, including new apartment leases or setting up utility services, usually include a credit score review as well.

A good credit score can work in your favor in these situations and others. Here’s what it means to have a good credit score — along with tips on how you can work to build good credit.

What is a credit score and what does it mean?

A credit score is a three-digit number that helps lenders and others predict the risk of issuing financing or services to consumers. A credit scoring model calculates your credit score based on information found in your credit report.

The specific job of a credit scoring model is to predict the likelihood that a consumer will pay any credit obligation 90 days late or worse within the next 24 months. This purpose is known as the stated design objective of the credit scoring model.

A higher credit score means a consumer is less likely to pay a credit obligation severely late (90 days late or worse) in the upcoming 24 months, or put another way, is more likely to pay on time. A lower credit score means there’s a higher likelihood of severe delinquency based on the information found in the consumer’s credit report.

How to read your credit score

In the United States, most lenders use two primary credit scoring systems — FICO® and VantageScore®. FICO, the older of the two credit scoring systems, touts on its website that it’s the choice of 90% of top lenders.

When you apply for a loan or credit card, there’s a good chance that someone will review your FICO® Score as part of the application. Yet VantageScore credit scores are growing in popularity as well. From March 1, 2021 to Feb. 28, 2022, more than 3,000 companies reviewed 14.5 billion VantageScore credit scores, according to a report by global management consultant Oliver Wyman showcased on the VantageScore website.

Most FICO and VantageScore credit scores range from 300 to 850. Within this credit score range, a higher score communicates that you’re a lower credit risk. A lower credit score signals the opposite.

Here’s what your credit score range tells lenders about your creditworthiness.

Benefits of having good credit

Earning a good credit score can pay off in many ways. Below are several potential benefits you might be able to enjoy once your credit crosses the threshold into good or better territory.

• Better qualification odds for financing (e.g., loans, credit cards, lines of credit, etc).
• Lower interest rates.
• Higher credit limits and loan amounts.
• Easier qualification for leases (apartments, auto leases, business leases, etc).
• Smaller deposits (or no deposits) for new utility accounts.
• No security deposit for new mobile phone contracts.
• Lower auto insurance premiums.
• Savings on other types of insurance.
• Better credit card rewards options (including travel rewards).

Of course, having good credit doesn’t guarantee you’ll be able to get a loan, lock in a lower insurance premium or qualify for any of the perks above. But a credit score in the good or excellent range is certainly likely to improve your odds in each of these scenarios.

Pitfalls that can lead to bad credit

When it comes to your credit score, knowing what to avoid is often as important as knowing the positive steps you should take to build good credit. Payment history is the most important factor that shapes your credit score — worth 35% of your FICO Score and 40 to 41% (depending on the version) of your VantageScore credit score. Making a habit of paying your credit obligations on time every month is essential to your long-term credit score health.

The second credit score pitfall to avoid is running up a high credit utilization rate. Credit utilization describes the relationship between your credit card balances and limits. If you run up a large amount of credit card debt and don’t pay it off in full during the same billing cycle, you risk increasing your credit utilization rate and decreasing your credit score. Plus, you’ll likely waste a lot of money on expensive interest charges incurred when you carry a balance.

On a positive note, if you work to pay down your credit card debt, you can generally lower your credit utilization rate. You will likely also reduce the money you spend on interest each month.

Can’t afford to pay off all of your credit card debt at once? You might want to consider whether debt consolidation makes sense for your financial situation and goals.

When you should fix your credit

You don’t need a perfect 850 credit score to receive solid financing offers. But if the condition of your credit is less than exceptional (based on the ranges above), it makes sense to work to improve your credit.

Lenders typically reserve their best offers for borrowers with excellent credit. Therefore, earning top-tier credit can literally help you keep more money in your bank account.

Even if you’re not planning to apply for financing in the immediate future, you never know when you might need to rely on your credit for something unexpected. It’s wise to keep your credit score in the best shape possible so that it’s ready and available anytime you need it.

Ways to build your credit score

If you have no credit or you have a thin credit file (i.e., only a few established accounts), it may be wise to find ways to build your credit score. Below are several options to consider, depending on your situation.

• Open a credit card: Credit cards can be useful credit-building tools when you use them in a responsible manner. It might be helpful to look at credit cards designed for people who are new to credit first. Once you find an account that’s a good fit, be sure to pay on time and repay your full statement balance each month.
• Look into a credit builder loan: A credit-builder loan is a special type of installment loan designed for people who are new to credit or rebuilding damaged credit. Again, on-time payments are essential. You should also search for lenders that report to all three major consumer credit bureaus for this type of account to have the potential to help you build your credit scores with Equifax, Experian and TransUnion.
• Become an authorized user: When a friend or family member adds you to a credit card as an authorized user, the card issuer may add the account to your credit reports as well. If the account has positive payment history and a low credit utilization rate, having it added to your credit reports could help you build credit history and might improve your credit score. You don’t even need to spend on the card yourself to get the benefits.

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