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You need a good credit score to do just about anything today including get a loan, a new credit card, and sometimes even a new job.
Credit scores vary so much though, how do you know which is the right score that your lender will require?
I break down everything credit for you below, so you know what you need to get that loan approval.
What is a Good Credit Score?
A good credit score tells lenders that you’re a good risk. It means you pay your bills on time and don’t overextend your credit.
Lenders want clients like you because the chances of you defaulting on your loan are low. When you have a high credit score, it also helps in other areas of your life. You may get lower insurance rates or even get a new job.
What is a Good VantageScore?
Vantage Scores range from 350 – 850. Most people don’t have a 350 or 850 but fall somewhere in between. If you have an 850 VantageScore, you have ‘perfect’ credit. Not many people have this score. If you have a 350 VantageScore, no one will lend to you.
Most lenders consider a 660 VantageScore a good credit score. You may find lenders that require scores a little higher or a little lower, but on average 670 is good.
What is a Good FICO Score?
Most lenders use FICOScore. It works on the same range as the VantageScore, but most lenders consider a 670 FICO Score good. You need a score of 800+ or higher for lenders to consider your FICO score excellent.
8 Benefits of a Good Credit Score
It’s hard work to get a good credit score, but it’s well worth it. Here’s how you can benefit.
#1. Favorable Interest Rates
The most commonly known benefit of good credit scores is favorable interest rates. Lenders base your rate on your ‘risk of default.’
Your credit score is the first factor they use. A high credit score means you’re a good risk and have a good chance of scoring the low-interest rates you see advertised.
#2. High Approval Odds for a New Credit Card
The ‘good’ credit cards, like those with amazing rewards, require the highest credit scores. If you want great credit card options, work on your credit score first.
While you may get a credit card with a low credit score, it will have a low credit line, high APR, and typically no benefits like cashback rewards.
#3. More Loan & Mortgage Opportunities
Mortgage lenders look for good credit scores. Most programs require a 620 or higher, but if you want the best rates and/or highest loan amounts, you need a 680 – 700 score.
While you can get mortgage programs with bad credit (subprime loans), they often have unaffordable interest rates and not so friendly terms, like prepayment penalties and high origination fees.
Learn More: LendingTree Review
#4. Better Chances of Renting an Apartment
Landlords check your credit too. They use it to determine if you’ll pay your rent on time. If you have a low credit score, they’ll think you’re high-risk.
Most landlords require compensating factors that prove you are a good risk. If they allow you to rent, they may charge a higher security deposit too.
#5. Refinancing Opportunities
Once you own a home, you may want to refinance to get a lower rate or tap into your home’s equity. Just like when you buy a home, you need great credit to get the best terms and rates on the loan. This is especially true if you want to tap into your home’s equity, which means taking out a larger loan.
#6. More Employment Opportunities
Some employers pull your credit, believe it or not, especially if the job deals with money or finances. They don’t see your credit score, but they’ll look at your credit history.
They look for on-time payments and responsible use of your credit. Collections, bankruptcies, and judgments on your record could make it harder to get the job.
#7. Better Insurance Rates
Insurance agents use your credit score to determine your level of financial responsibility. Studies prove that drivers with lower credit scores make ‘riskier’ choices when driving, which puts insurance companies at higher risk of paying out.
#8. Higher Credit Limits
A good credit score gets you higher credit limits on credit cards, line of credit loans, and personal loans. A high credit score means you’re a good financial risk and can handle the higher credit limit without overextending yourself or defaulting on the loan.
How to Get a Good Credit Score
Below are some simple credit hacks you can implement today to get a good credit score.
Optimize Credit Utilization
Keep your credit use at less than 30% of your credit line. For every $1,000, have no more than $300 outstanding. Credit utilizationis 30% of your credit score, so be cautious about your credit use.
Pay Off Bills on Time
Your payment history is the largest part of your credit score. It makes up 35% of the total score. Even one 30-day late payment can ruin your credit score. Make sure you pay your bills on time and if you slip up, get current as quickly as possible.
Pay in Full
Only charge what you can afford so you can pay your credit card bill in full every month. This gives you the greatest chance at a good credit score because you aren’t carrying a balance.
Consider Credit Mix
Don’t go heavy on revolving debt. This makes you look risky and hurts your credit score. The credit bureaus prefer that you have a mix of installment debt and revolving debt to show your financial responsibility level.
Do Not Close Credit Accounts
Closing old credit accounts hurts your credit score in two ways. It lowers your length of credit history, which reduces your credit score. It also increases your credit utilization rate because you have less credit available to use.
Be Careful Shopping for Loans
Shopping for loans makes sense so you can get the best interest rate but shop too much and it could hurt your credit score. Try keeping your inquiries within 30 days and for the same type of loan.
The credit bureaus usually only hit you for one inquiry when you do it this way. But know if you shop for a credit card, installment loan, and mortgage in the same 30 days, for example, that counts as 3 inquiries, not one because they are for different types of loans.
Monitor Your Credit
Check your credit a few times a year for free, or sign up for Experian (also free) and get your monthly credit score. Look for mistakes (not your fault), mistakes you made, and fraudulent information that doesn’t even belong to you.
Related: Best Credit Monitoring Services
If you can’t fix your credit or there are too many negative tradelines reporting, hire areputable credit repair company to handle it for you. A credit repair company can dispute even the smallest detail that you may have overlooked that could turn your negative credit into good credit.
Learn More: How to Fix Your Credit
Build Credit Responsibly
As you build credit, be responsible. Don’t apply for credit just for the sake of applying. Only apply for the credit you need.
For example, you receive five credit card pre-approvals in the mail. You probably don’t need all five offers. Do you even need one? Think about it carefully before you apply, or you could ruin your credit.
Related: What Affects Your Credit Score?
What Do Lenders Consider a Good Credit Score?
Most lenders look for good credit – aka a score of 670 or higher. But the exact score depends on the type of credit you’re applying for.
Mortgage loans have the strictest credit score requirements because they are such a large loan and could last for 30 years. Credit cards and personal loans may not require ‘great credit scores’, but when you have a 670 or higher score, you put yourself in a much better financial position.
Why Do Lenders Care About Your Credit Score?
Your credit score is the first place most lenders learn about your financial responsibility. They use the number to determine if you pay your bills on time, use your credit responsibly, and can handle another loan.
If you have a bad credit score, they probably won’t approve you for a loan. If they do, it will be for higher rates and with less pleasant terms.
Good Credit Score FAQs
What is a Good Credit Score to Buy a House?
If you want conventional financing and the best rates, you need a 680-credit score. If you are just trying to get a mortgage to buy your first home and don’t mind government financing (FHA loans), you can get by with a 580-credit score. Just remember the lower your credit score, the less pleasant terms the lender may offer.
What is a Good Credit Score to Get Approved for a Car Loan?
You may need slightly higher credit scores to get a car loan because of the investment riskiness. Cars depreciate rather than appreciate.
This puts you at the risk of being upside down on your loan if you don’t make payments on time. To get 0% APR financing at the dealer, you’ll need a 700+ credit score. If you get funding from a local or online bank, you may get by with a score in the mid to high 600s.
How Long Does it Take to Get a Good Credit Score?
Getting a good credit score doesn’t happen overnight. It takes careful thought and action. If you have no credit, it could take up to a year to see a good credit score. If you have bad creditand want to improve it, you may see your score increase within a few months to a year depending on your actions.
What Credit Score Do I Need to Rent an Apartment?
You don’t need a specific credit score to rent an apartment. It depends on the landlord’s risk tolerance and what he/she wants. You’ll find some landlords who require a 700+ score and others who are fine with a 600.
What Credit Score Do I Need to Get Approved for a Credit Card?
You can get some credit cards with no credit score (secured cards) and other cards require at least a 700, sometimes higher. Reward credit cards require the highest scores, but they also provide the most benefits.
Bottom Line: What is a Good Credit Score?
A good credit score is crucial to just about every area of your life, not only your finances. Always monitor your credit score and take the steps necessary to improve it. Your score changes monthly, so any improvements (or bad moves) you make will affect it right away.
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