What is an excellent credit score?
WWhen a lender wants to know how likely you are to pay off your loan or credit card balance, they look at one of your credit scores. This three-digit number indicates whether you are excellent credit risk, low risk, or somewhere in between.
If you have a great credit rating, credit card issuers and lenders are more likely to approve your applications. A great credit score can also help you qualify for the best credit cards, the lowest interest rate, and the most favorable terms a lender can offer.
What is an excellent credit score?
The definition of an excellent credit rating may be different depending on who you ask. Each credit card company and each lender sets their own credit score criteria. So the credit score thresholds you need to meet for approval, lower interest rates, and better borrowing terms can vary from lender to lender.
According to Experian, a lender may consider your credit rating to be excellent or exceptional with numbers such as:
- FICO Score: 800-850
- VantageScore credit score: 781-850
What are the credit score ranges?
Your credit score range can fluctuate from very bad / bad to exceptional / excellent. It all depends on (a) the information on your credit reports and (b) the credit scoring model a lender uses to assess those details.
Here are the basic credit score ranges for FICO and VantageScore credit scores.
- Exceptional: 800-850
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
- VantageScore credit score:
- Excellent: 781-850
- Good: 661-780
- Fair: 601-660
- Poor: 500-600
- Very poor: 300-499
It is common for your credit rating to increase throughout life, making it easier to obtain credit. But, they can also drop, making it more difficult and costly to qualify for funding and services.
Why is a great credit score important?
Your credit scores can have a direct impact on your ability to get a mortgage, take out a car loan, and open a credit card account. Credit also plays a role in how much money you can borrow and how much it will cost you to do so.
It’s important to have a great credit score every time you complete a new credit application. However, other entities, apart from new lenders and credit card issuers, can also access your credit scores to make decisions.
Who cares about your credit score?
Here is a list of people who are legally authorized to access your credit reports and ratings:
- Current credit card issuers, lenders and creditors can check your credit scores in several circumstances. For example, if you request a higher credit limit your card issuer may review your credit. Most credit card companies also check one of your credit scores every month to make sure they want to continue doing business with you under current borrowing terms.
- Potential credit card issuers, lenders and creditors review your credit scores to determine whether to approve or deny your credit applications. Credit scores also guide credit card issuers when submitting pre-approved credit offers.
- Utility companies may use your credit scores to determine if you need to pay a security deposit before establishing service.
- The owners may use a credit check, including your payment history, to decide whether or not to rent to you (and the amount of your initial deposits).
- Insurance companies Often rely on credit-based insurance scores to determine your insurance premiums and whether to offer you a policy. These scores are different from traditional scores FICO scores and VantageScore credit scores, but your credit history still plays a big role here.
- Employers can review your credit reports (never your credit scores) to make hiring decisions. However, they first need your written permission to access your credit information.
- Collection agencies access credit reports to locate people and attempt to collect outstanding debts. This process is called jump tracking.
- You can access your credit reports free of charge to ensure that the information in your credit reports is accurate. You can receive a free report every 12 months from each of the top three credit bureaus (Experian, Equifax and TransUnion). AnnualCreditReport.com is the only official site for free credit reports. You can also access your credit scores, but you may need to pay a fee to do so.
If you discover errors in your credit reports, you have the right to dispute them with the appropriate credit reporting agency. Credit errors can lower your credit scores. You should therefore make sure to correct any inaccuracies that you find in your credit reports.
How to get a great credit score
The length of your credit history represents 15% of your FICO score. As you get older and maintain a positive payment history, your scores should increase.
Yet younger people can also achieve excellent credit scores.
A FICO Analysis found that younger consumers with a FICO score of 800 or higher had several credit report factors in common.
Median credit profile of consumers with FICO scores of 800 to 850 (youngest 15%)
- 47 months (3 years and 9 months) since the last late payment.
- 96% had never missed payment.
- 9 revolving accounts.
- 5% renewable use.
- 12% of the highest renewable utilization rate.
- Total balance of $ 1,598 on revolving accounts.
- 12 months since the last account opening.
- 9 months since last firm credit check.
- 99 months (8 years and 3 months) average length of credit history.
As you can see, young consumers with excellent credit scores achieved them by keeping payment history on time and maintaining the relationship between their credit card balances and limits (i.e. – say the rate of renewable use) low.
The youngest members of the 800 credit score club weren’t afraid to open credit cards (with nine revolving accounts on average). However, they have been careful to manage credit cards wisely.
Your credit history does not have to look exactly like the one described above to achieve a great credit score. Still, studying the habits of people with over 800 credit scores can point you in the right direction on your own credit creation journey.
Why are credit scores changing?
Your credit scores are not constant. They behave more like the numbers on your bathroom scale than say a more permanent figure, like your height. As the information on your credit reports changes, your credit scores tend to follow suit.
Here’s why your credit scores may differ from month to month:
- The amount of debt you need to increase or decrease.
- Your credit utilization rate amended.
- Your account balances have changed.
- Your payment history has changed due to new payment delays showing up on your credit reports or old payment delays.
- You have requested or opened new lines of credit.
- You closed a credit card.
- Derogatory information has appeared on your credit reports or has been deleted.
- You are the victim of identity theft.
A small fluctuation is normal when it comes to your credit scores. But big changes could signal a more worrying problem.
Some credit card companies make credit monitoring easier by giving you free access to one of your credit scores each month. Just remember, it’s also important to keep an eye on your three credit reports themselves, not just your credit scores.
Track your credit reports will not prevent credit problems from occurring. But this good habit can put you in a position to react quickly to identity theft or other types of credit errors.
How to get a perfect credit score
Most credit scores range from 300 to 850. So if your goal is to achieve credit score perfection, then 850 is where you’ll want to set your sights.
In the United States, about 1.2% of all FICO scores are perfect at 850.
Experian analyzed the characteristics holders of 850 credits and found that members of this elite group shared several attributes. Consumers with 850 credit scores:
- Had more accounts open but carried less debt.
- Paid their bills on time every month.
- Maintaining low levels of credit utilization (with plenty of credit available).
This can encourage you to learn that income is not a factor in your credit scores. In fact, about 20% of people with a credit score of 850 earned $ 50,000 or less per year.
However, you don’t need a perfect credit score to access the best offers from credit card issuers and lenders. An excellent credit score is high enough to achieve this goal. Going beyond a great credit score to get the highest credit score doesn’t have much tangible value other than a few cool bragging rights.
Best Ways To Improve Your Credit Score
Getting a great credit score can have a significant impact on your financial life. Great credit can help you qualify for the financing you need and can help pay less to borrow money.
Whether your goal is to build credit, rebuild your credit, or improve your good credit scores, most of the advice will be the same. Above all, you want to pay off your credit obligations on time. After all, payment history influences your credit scores more than any other factor.
Plus, using credit has a significant effect on your credit scores as well. (Credit usage is a major factor in 30% of your FICO scores.) Therefore, you should always try to figure out how many credit card limits you are using. The lowest utilization rates are the best, 0% to 1% being the best credit utilization rate for your credit scores.
A good credit mix can help you too. For example, you might want to aim for a combination of revolving accounts and installment loans on your credit reports.
The above good credit habits can improve your credit rating over time. Maintaining great credit takes a lifetime of effort, but it can also unlock a lifetime of benefits in the process.
This article was written by Michelle Black and originally appeared on Credit Card Insider.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.