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What is considered a good FICO credit score, anyway?

Erica Sandberg

February 27, 2015

QHi Erica,

What's a “good” credit score, anyway? I've heard 740, 760, above 700. How are we supposed to know what to achieve if the industry isn't upfront? –Tina

ADear Tina,

It's not that the credit rating system is rigged or dishonestly set up — it's that there are no hard and fast rules as to the perception of what constitutes a “good” score; neither is there just one “industry.” Credit card issuers, finance companies, mortgage lenders, insurers, landlords and more can check credit scores, and each may have its own criteria for pass or fail grades.Ask Erica

You see, credit scores do not exist for us, the public, but for businesses wanting an immediate, accurate assessment of a current or potential customer's creditworthiness. In essence, they are risk predictors. Multiple credit scoring models exist, but FICO is the most common. FICO scores range from 300 to 850, with higher numbers indicating less financial risk and lower numbers indicating higher financial risk. In general, this is considered to be the different tier levels:

Excellent – 750 and above

Good – 749 to 700

Fair – 699 to 650

Poor – 649 to 600

Bad – 599 and lower

So, why the digit discrepancy that you mentioned? Because one company may believe 730 to be an excellent score, but another may consider it to be at least 775. The companies using the score make that determination.

It is important to know how these scores are calculated, so you can make a conscious effort to increase them. While you don't have any control over how a business might set its score scale, you certainly can create a FICO score that the majority will consider more than good enough. Here is the recipe:

Never pay late. Some 35 percent of a score tracks if you send your payments to your creditors on time. An established pattern of being responsible this way will make your scores escalate. This includes making sure no accounts go into collections and that you don't file for bankruptcy.

Keep revolving debt low. Credit utilization is 30 percent of a FICO score. The less you owe the better. Just keep your debt at least below 30 percent of what you can borrow. For example, if you have a card with a $1,000 credit limit, a revolving balance at least under $300 is ideal.

Be a regular credit user. The length of your credit history is 15 percent of the score, and it evaluates how long you've been borrowing and repaying. You can't make the hands of the clock zip around faster, but you can and should use credit products often. Eventually time will be on your side. Your best plan? Charge a small regular fee on each card and pay them in full each month. That keeps the accounts active.

Wield a variety of credit. This is 10 percent of the FICO score. A healthy mix of credit products will be to your benefit. Therefore, if all you have is a store card, consider adding another card to your wallet — credit cards are called revolving credit. If you include a car, home or student loan, called installment credit, that will help improve your score further, provided you pay on time.

Apply only for the credit you need and want. Pursuit of new credit is the final scoring category, also at 10 percent. Keep credit applications to a minimum. If you were to aggressively try for many accounts in a short span of time, a red flag goes up, as it appears that you're desperate.

One final thought: Check your credit reports at least once a year for free at AnnualCreditReport.com to make sure there are no errors. You can periodically check your FICO score for about $20 per credit bureau at MyFICO.com.

Follow these instructions and your credit reports will be loaded with enough positive data to generate scores that are usually considered to be in the top range. You may not satisfy every business, but that's a goal you shouldn't shoot for anyway. You can only do your very best, right?

Got a question for Erica? Send her an email.