An excellent credit score is like the highest math score on the SAT. With both, 800 are exceptional. But if your credit score isn’t anywhere near that number, you need to know what constitutes a good credit score that will allow you to qualify for a loan at a decent interest rate.
The answer: It should be at least in the mid to high 600s.
If your score isn’t that high yet, you’ll need to exercise good lending behavior, take some strategic steps, and be patient. You may also want to take advantage of two new programs offer by companies in the credit industry that are design to improve those numbers (more on these programs below).
FICO score
The FICO score is the credit scoring brand used by most consumer lenders, so it’s the one you pay the most attention to. FICO credit scores typically range from a low of 300 to a high of 850. (A few custom FICO scores for auto loans or bank cards range from 250 to 900, says Can Arkali, a senior scientist in credit analysis and development).
When you receive a credit score report from your lender, your number is often represent on a continuum as a spectrum or rainbow, with bright green indicating the 800 range and red representing not so good. FICO says there is no “cutoff” where, for example, a good credit score becomes a very good credit score, or a very good credit score becomes exceptional. But Experian, one of the 3 major credit bureaus that supply data used in the FICO score, sets the limits like this:
- More than 800: Exceptional. Only 1% of borrowers in this range are likely to become seriously behind on their payments. You will be easily approved for the lowest rates.
- 740-799: Very good. The 2% of borrowers in this category are likely to become seriously delinquent. You may be able to get better rates from lenders, but it’s not guaranteed.
- 670-739: Good. 8% could become seriously behind in their payments. This range is where most Americans are found. You’re an “acceptable” risk.
- 580-669: Regular. An estimated 27% in this group could become delinquent. You are a candidate for subprime loans at higher rates.
- 579 and below: Poor. FICO does not trust this group at all; it is estimated that 61% could fall seriously behind in their payments. If you can get credit, you’ll probably have to put up a security or deposit. You may also have to pay a fee that higher scoring borrowers don’t pay.
Stay out of the high-risk
Bruce McClary, vice president of communications for the National Foundation for Credit Counseling, says a high-risk FICO score, in which a borrower is offer no or very expensive credit, is similar to the Experian range, with “good” starting at 660 or 670.
“If someone’s score drops below 600 on the FICO scale, that’s a critical situation,” says McClary. “A lot of lenders won’t lend to them, and the ones that do lend to them are going to offer the highest cost or interest rate possible.” With a FICO score of less than 600, you may be able to get a subprime credit card or bank loan (called a signature loan), but it could charge you up to 36% interest, the maximum allowed by law, he says McClary.
Katie Ross, education and development manager for American Consumer Credit Counseling, a nonprofit organization that provides guidance to consumers across the country on budgeting, credit, debt and related topics, sets the cutoff between fair and good at 600. “What matters most is that you manage your credit so that you’re above the regular credit score range,” she says.
It’s not a label for life
There are many things you can do to make sure you have a good credit score. Most importantly, make your credit card and loan payments on time. 35% of the FICO score is based on your payment history. Check out our other tips.
Those with poor or high-risk credit histories might consider signing up for one or both of Fair Isaac Corporation’s new credit enhancement programs, Experian Boost and UltraFICO. Boost, which launched in March, includes utility payments in the score calculation, and UltraFICO, expected to roll out nationally later this year, reviews banking history. To learn more, check out these new ways to improve your credit score.
Keep in mind that a major drop in your luck or behavior could drop your credit score by 100 points, but you’re unlikely to drop in the 300 range. In fact, McClary says he’s never actually see a 300 FICO score, or an 850 score, for that matter. The lowest score he’s ever seen was 425, he says, and in that case the borrower had already been in bankruptcy and was behind on payments to multiple creditors. “Obsessing about perfecting your score could be a waste of time,” says Ross. “Your efforts should be more focused on keeping your score within a healthy range.”