What is a Good Credit Score?

A good credit score is a credit score of 700 or higher. Your credit score is one of the most crucial elements affecting your economic potential. Whether you’re just starting your financial journey, looking to apply for a loan, or curious about enhancing your creditworthiness, understanding what constitutes a good credit score is crucial.

Why is Good Credit Score Important?

In today’s economy, your credit score is more than just a number; it’s a gatekeeper to your financial opportunities. From securing a mortgage or a car loan to influencing insurance premiums, your creditworthiness precedes you in almost every major financial transaction. Despite its critical importance, the concept of credit scoring remains a mystery to many.

Even more confusing is the fact that there are two different credit scoring models. We will dissect the layers of credit scoring, explore what it means to have a good credit score and give you actionable advice to enhance this vital aspect of your financial health.

Related: 5 Alternative Ways to Build Up Your Credit Score

How to Understand Credit Score

Definition and Purpose

At its core, a credit score is a three-digit number that evaluates the likelihood of an individual to repay borrowed money based on their credit history. It serves as a quick reference for lenders and other decision-makers in assessing risk and deciding to extend credit.

Credit Score Ranges and Categories

Credit scores fall into various categories ranging from poor to exceptional. The most widely used score model, the FICO score, rates creditworthiness on a scale from 300 to 850. Newer scoring models like VantageScore have slightly different score ranges but follow the same basic principles. FICO defines a good score ranging from 670 to 739, whereas the spread for VantageScores is from 661 to 780. 

Factors Influencing Credit Scores: Decoding the Formula

The makeup of your credit score is a weighted average of several key factors. Understanding these components is the first step to managing and improving your score.

Payment History: The Pillar of Creditworthiness

Arguably the most critical factor, your payment history, which includes the timeliness of your payments and any defaults, can significantly impact your credit score.

Credit Utilization: Balancing Act with Borrowing

The second most influential factor, credit utilization, refers to the amount of credit you use compared to your total available credit limits. Keeping this ratio low can reflect positively on your credit score.

Use ScoreBoost to optimize your payment schedule around the credit bureau reporting to show the lowest possible utilization rate → 

Length of Credit History: Proving Reliability Over Time

The age of your oldest account and the average age of all your accounts can speak volumes about your usage and management of credit over the years.

Credit Mix: Variety is Key

Demonstrating proficiency in handling different types of credit, such as installment loans and credit cards, can contribute to a more robust credit score.

Need help mixing things up? Browse myLONA for financial products tailored to you →

New Credit Applications: The Cautionary Tale

Frequent and recent credit inquiries and new account openings can suggest financial strain and lead to a temporary dip in your credit score.

Related: How Many Points Will a Hard Inquiry Cost on Your Credit Score?

The Impact of Credit Scores: More Than Just a Number

Your credit score has a domino effect on several facets of your financial life, extending beyond the realm of borrowing money.

Access to Credit: Limits and Opportunities

A good credit score opens the door to a world of credit options, making you eligible for more and potentially better lending products.

Interest Rates: The Price Tag of Credit

The influence of your score on interest rates is profound; a good score can translate into lower rates, saving you thousands of dollars over time.

Compare interest rates based on your current AND future credit scores with myLONA → 

Insurance Premiums: Financial Health on Different Scales

Beyond loans, even auto and home insurance companies use credit scores to calculate premiums, considering them a proxy for financial stability.

Rental Applications: Credit As A Trustworthy Reference

Landlords often consider credit scores when applying for a rental property to gauge financial responsibility and rental risk.

Related: Who Can Legally Access My Credit Reports?

Tips for Building and Maintaining a Good Score

Building a solid score is a journey that demands patience, prudence, and ongoing attention to detail. Here are actionable strategies to foster a good score.

Pay Bills On Time, Every Time

The simplest and most effective way to build credit is to pay your bills by their due dates. Consistency in timely payments is a cornerstone of a good payment history.

Related: How Many Points Are Late Payments Worth In Your Credit Score?

Keep Credit Utilization Low

While using credit is necessary to build your history, keeping your credit card balances low in relation to your credit limits can demonstrate financial responsibility.

Use ScoreBoost to optimize your payment schedule around the credit bureau reporting to show the lowest possible utilization rate → 

Maintain a Good Credit Mix

Having a healthy mix of credit types can showcase versatility in managing different financial obligations and enhance your opportunities.

Avoid Unnecessary Credit Applications

Resist the urge to open new credit accounts impulsively. Each inquiry can impact your score, especially if there are too many in a short period.

Related: How Many Points Are Credit Inquiries Worth In Your Credit Score?

Regularly Monitor Credit Reports

Staying informed about the content of your reports can help you detect errors or fraudulent activity early, allowing you to address them and protect your score.

Check your Smart Credit Report today! →

Everlasting Value of a Good Credit Score

A good score is more than a financial badge of honor; it’s a ticket to opportunities, measures your financial responsibility, and can save you significant money over a lifetime. By understanding the nuances of credit scoring, taking charge of your financial habits, and using the tips provided in this guide, you can foster a credit that reflects your true potential.

Every financial decision today shapes your score tomorrow. Cultivate a mindset of long-term financial health, and let your score be a testament to your character.