What Is a Good Credit Score – Understanding Credit Score Ranges and Why They Are Important

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What is a good credit score
You have seen the commercials and heard the radio jingles, so by now you know that a good credit score is important. But what is a good credit score? Generally, anything above 700 is considered a good FICO credit score. But that is not the end of the story. The reality is that a good…

You have seen the commercials and heard the radio jingles, so by now you know that a good credit score is important. But what is a good credit score? Generally, anything above 700 is considered a good FICO credit score.

But that is not the end of the story. The reality is that a good credit score doesn’t guarantee a loan or mean that you are in good financial shape. A good credit score just gives the lender another piece of information to help determine your credit worthiness. Your ability to get a loan depends on many factors, including your credit report, your credit history, amount of available credit, credit utilization, and other factors. Many lenders even use specific types of credit scores for certain loans. For example, the FICO 8 score is often used by mortgage companies to determine one’s ability to qualify for a mortgage.

Expert Tip: Get a free copy of your credit score.

What is a Good Credit Score Range?

What is a good credit scoreYour credit score is determined by a proprietary mathematical formula. There are many different versions of credit scores, but the most commonly referenced is the FICO credit score, which is considered the industry standard. Your credit score is based on a weighted formula which includes your payment history, amounts owed, age of credit history, recent loans, and the types of credit you have. The FICO credit scores range from 300 to 850 and a good credit score range is considered 700 – 850. Here are more credit score ranges and their ratings.

FICO credit sore ranges:

  • FICO credit score range: 300 – 850
  • Good credit score: above 700
  • Average credit score: 680 – 700 (depending on source)
  • Poor credit score: Below 620

Why You Need a Good Credit Score

The FreeCreditReport.com commercials want you to believe you need a good credit score to drive a nice car and pick up chicks. Unfortunately, that’s not quite true. A good or bad credit score doesn’t guarantee a loan or necessarily prevent you from getting a loan. A good credit score will make it easier to be approved for a loan, allow you to have more available credit, and qualify you for lower interest rates when you are approved for a loan. And low interest rates can make a HUGE difference over the life of a loan.

How a good or bad credit score affects interest rates. Loans are available to almost anyone, even people with a poor credit score. But the terms and size of the loan will vary widely. The difference will come in the form of the required down payment or the interest rate you will have to pay. Let’s look at some examples of how good and poor credit scores will affect your payment structure on a mortgage, then on an auto loan. There is a substantial difference in monthly payments between high and poor credit scores, and the payments over the life of the loan should be enough to convince you that a good credit score is valuable!

Effect of Credit Score on 30 Year Fixed Mortgage Rates

The score ranges and interest rates below come directly from the MyFICO website. There are three examples given for credit score ranges and interest rates, one is for auto loans and the other compares credit score and interest rate ranges for 15 and 30 year mortgages. The example below is from the 30 year fixed mortgage at $300,000:

FICO® score APR Monthly Mortgage Payment
760-850 4.645% $1,546
700-759 4.867% $1,586
680-699 5.044% $1,619
660-679 5.258% $1,658
640-659 5.688% $1,739
620-639 6.234% $1,844

Comparing good credit mortgage rates and bad credit mortgage rates. Using the numbers above, you will notice there isn’t a big difference in the monthly payment from the top credit score to the second tier credit score range of 700-759 (remember anything over 700 is generally considered a good credit score range). Once you start dropping into the lower tier credit score ranges, you will see a large monthly difference in your payments. But thinking in terms of monthly payments can be an expensive way to think, especially when you consider that this is for a 30 year mortgage.

Even with the best credit score, making minimum payments on a 30 year mortgage means paying $256,564.15 in interest over the life of the loan. Paying 6.234% interest over the life of a 30 year mortgage equates to paying $363,851.12 in total interest. To put it another way, that monthly difference of $298 equals a difference of over $107,000 over the life of the loan.

How Your Credit Score Affects Auto Loans

Using the same concept as we used above, let’s examine the how your credit score range affects your monthly auto payments. The MyFICO website references a 36 month fixed rate auto loan for $25,000.

FICO® score APR Monthly Auto Payment
760-850 5.715% $757
700-759 7.354% $776
680-699 9.380% $799
660-679 13.196% $845
640-659 18.039% $904
620-639 18.680% $912

Comparing good credit auto loan rates and bad credit auto loan rates. As you can see, the monthly difference  between the good credit score range and a poor credit score range is $155, or over $5,500 for the life of the loan.

How Your Credit Score Can Impact Other Areas of Your Life

Some other companies or industries may also check your credit history or credit score. Here are some of the ways they may use your score:

  • Employers: Whether it’s right or wrong, employers believe that financial health is a good determinant of whether a potential employee will steal. Reviewing a credit history has become standard in background investigations, especially if they are security related, because someone in difficult financial shape may be tempted by bribes. While bankruptcy can’t be a factor in a hiring decision, everything else in the history is fair game.
  • Insurance companies: It’s unclear why insurance companies use credit in their decisions but the fact they do is very clear. The lower your credit score, the higher your premiums will be. For whatever reason, their actuaries have determined that lower scores mean more claims.
  • Landlords: Landlords have been checking credit scores and histories since the beginning of time because they’re essentially “lending” you the value of rent each month. If you’re unable to regularly meet other obligations, you might not be able to make rent and that’s a problem. This same logic applies to service contracts, like cable or cell phone service.

What is Bad Credit Score?

Have a poor credit score? Credit scores under 620 are often considered sub-prime loans, and come with more risk to the lender. Borrowers with credit scores in this range often pay substantially higher interest rates. If you fall below the sub-prime loan cutoff limit, it may be best to try and improve your credit score before applying for a loan. You may find it easier to obtain a loan and the terms will likely be better.

Remember, not all is lost. As we mentioned above, you can almost always find someone to give you a loan if you need one. You will see a difference in the terms of the loan, though. You may be required to pay a larger down payment or higher interest rates to get the loan you are seeking.

Why None of Your Credit Scores are the Same

Many people are rather surprised when they look at their credit scores and see that they don’t match up. A credit score may differ across different credit bureaus, and those scores are often a little bit different than what you see when you get your free FICO credit score. Sometimes the difference is more than a “little.” In some cases, your might find that your credit scores vary by up to 20 points — or more. Why is this? The answer lies in the fact that credit scoring models differ across agencies and financial institutions.

Two Credit Scoring Models: FICO and VantageScore

Most of us think of FICO when we think of credit scores. Fair Isaac Company pioneered credit scoring as we know it today, coming up with a complex formula to predict borrower behavior based on how credit users have behaved in the past. In order to come up with the FICO score, Fair Isaac Company uses information found in your credit report. But FICO is more than just one score. Indeed, Fair Isaac has a number of different scores that it markets to financial services providers to use when evaluating you. There is a depositor score that rates your banking behaviors, as well as mortgage score that lenders can use to determine your default risk.

VantageScore is another credit score model, this one created by the three major credit agencies. Unlike the FICO score, which ranges from 300 – 850, the VantageScore ranges from 501-990. Additionally, the VantageScore also includes letter rating of A to F. According to the VantageScore web site, this credit scoring model is designed to be a little more friendly toward those who use credit irregularly. The credit agencies claim that the VantageScore, which also gets the data for its scores from credit reports, can help provide an accurate look at those who may be penalized by the FICO score for not using credit as frequently.

Tweaking Credit Scores

One of the reasons that each agency comes up with a different score for you is that not all agencies have the same information reported to them. But, on top of that, each agency tweaks the FICO score as well (except Experian, which does not use the FICO score). But credit agencies aren’t alone in tweaking the formula. Many lenders and insurers have their own ways of emphasizing certain factors more or less in their own scoring models, as well as considering other information.

The result of this is that your credit score can vary widely, depending on what information the institution figuring your score has, and what information is emphasized more in their only variations of credit scoring formulas they use.

More Consumer Information Being Used to Build a Profile

Anymore, lenders and other financial services providers are relying on more than a simple score model. Credit score systems are becoming increasing complex, and some creditors are also striking out on their own to do additional research. The Fed has decided that lenders can use “income estimates” figured by credit bureaus to verify your income, and some lenders actually check what you say about money on your social media profile. On top of that, it is possible for creditors to pinpoint exact purchases made with debit and credit cards.

All of this information has the possibility of being used to construct consumer profiles that can then be used by financial services providers. It is even possible that ever-evolving credit scoring models will begin to take some of this data into consideration.

Your Credit Score is Important

Like it or not, your credit score plays an important role in your ability to obtain a loan, the amount of available credit you can carry, and the interest rates you will pay. If you are considering applying for a loan in the near future it is probably a good idea to know your credit score and try to improve it before applying for the loan.

Get your credit report and free credit score. If you are interested in monitoring or improving your credit you can get instant access to your 3 credit scores with GoFreeCredit.com.

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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. Hank says

    The military also uses credit scores to determine what type of security clearance (secret, top secret, etc.). Being too much in debt limits the type of job you can hold, whether you can go to OCS and become an officer, your security risk “to steal” secrets, and how much pressure you might be under to give up those secrets. If you are severely in debt with bad credit, you may not be allowed to continue in the military, join to begin with, and your job prospects are severely limited.

  2. John Hunter says

    It does seem like those using credit scores are stretching the sensible use of them. Once problem is I highly question the ability of most companies to think of it as one factor. I would not be surprise all sorts of them have some arbitrary cutoff numbers. Even when it is useful it is only one measure and a fairly odd one in many ways (like that it pays no attention to the assets you have).

    Once insurers figure out that low credit scores correlate with poor insurance risk it is certainly understandable that they want to use that factor in their decisions. It may not seem “fair.” Many things about insurance are not fair. Plenty of young drivers are responsible, safe and accident free. But since many people of that age are irresponsible and accident prone all young people must pay more for care insurance.

  3. fredct says

    The employer, IMHO, has a vested interest in knowing your score, especially if you handle money such as in retail or finances. Someone deeply in debt would be more tempted to steal or embezzle.

    Likewise, if you work in a job that has access to ‘company secrets’ someone deeply in debt would be more easily bribed to give away that information. That’s the same logic as to why the government checks you for clearance jobs. It may not be quite as life and death, but it is very important for the company. If KFC hires someone who sells their secret blend of herbs & spices to pay off their credit cards debt (a silly, but relevant example), the company is in trouble.

    Auto insurance is more of those ‘who knows why but it works’ things. People with high credit scores tend to have lower rates of claims. It could be because they have better financial resources and won’t claim as many little things. It could be because someone who is responsible with money is more likely to be ‘responsible’ with other things in life, such as driving. It could be something else, or it could be some combination of all of them. It’s not really ‘fair’, but it works and that’s why it’s widespread.

  4. Kevin Khachatryan says

    You’re entitled to one free credit score a year that shows the areas that affect your credit, both positively and negatively.

    Another good resource is creditkarma.com… check it out, it grades your credit and tells you what to do to improve.

    • Ryan says

      It’s actually one free credit report from annualcreditreport.com. You can read more about that topic here: free credit report from annualcreditreport.com.

      Most companies don’t give away a free copy of your credit score unless you sign up for one of their credit monitoring trials. CreditKarma.com gives an approximate score based on factors from the credit reporting agencies, but it is not the FICO credit score. However, it can give you a good idea if you don’t need to know your exact score.

  5. Glendon Cameron says

    One way to avoid a bad credit score is to use credit sparing at best. The only thing I finance now is real estate and no I am not rich. It just take learning how to save. Regardless of how good your score is, those bills must paid.

    Paying bills = paying interest

    interest=lost buying power!

  6. mike flori says

    On 5-23-2010 I checked my three credit scores from Transunion, Experian, and Equifax and found my scores range from 828 – 848 although they listed my credit grade as a “B” and not an “A”. Does this mean the scale has changed and these scores are now only average? They showed a scale ranging from 501 – 990 with anything above 900 an “A”. From what I recall, an 850 score was at the top of the scale previously.

    • Ryan says

      Mike, the FICO credit score range goes up to 850. It seems like you checked your credit score using the VantageScore credit scoring system. VantageScore is a credit score system run by the three major credit bureaus. It utilizes the same data that the FICO score uses (based on your credit report), but hte score ranges are different. Most lenders still use the FICO system, so be sure to check with your lender before applying for a loan.

  7. john nyikos says

    i have my son as a authroize user on some credit cards how does thst effect his credit score and if i take him off will that effect his score? thank you

    • Susan says

      Hey John,

      If your son is just an authorized user of your credit card it doesn’t affect his credit at all. If he is trying to build credit himself he needs to open his own account. The only person’s credit score that can be affected is your’s.

      • Jim says

        Not true I was able to build a fico score of 770 as an authorized user on my parents account just by purchasing and paying off what I had purchased without any other ways of building credit such as other cards or other bills

        • Paul says

          Jim, that is not correct. A credit card is assigned to one person’s social security number and can only be reported on that person’s credit report. It would be illegal for them to report that credit card on your credit report whether they reported favorably or not. Don’t believe me? Ask for a copy of your credit report and see for yourself… that card will not be listed on your report. Your credit score went up for other reasons, not from being a signer of your parent’s credit card.

  8. The Penny Hoarder says

    I do find it frustrating that the 3 credit bureaus never have the same information and thus different scores. They have created a monopoly out of the industry and yet I’m always surprised at how awful their reliability is.

  9. Pat S says

    Credit scores make a difference, even if you aspire to live debt free. Even employers are using credit scores to screen potential applicants these days.

  10. Ross says

    Pat’s comment hits on exactly what I think about every time I read an article about credit scores. It’s called a CREDIT score for a reason, that reason being that it’s simply an indicator of how reliable of a person you are. I for one am all for employers checking credit scores, as I think it typically speaks volumes about a person’s character, like how trustworthy and responsible they are and how well they honor their obligations.

    My only caveat to this opinion would be a situation where a person has never missed a payment and has been financially responsible, but just doesn’t have much of a credit history.

    • Glendon Cameron says

      I owned a company that hired MANY folks with bad credit, and many turned out to be great employees, I don’t see how a credit would determine how many people would fair in a job. It all depends on the job, finance, accounting, banking, I totally understand why your credit is interest, if you can’t handle your own money how can you handle a customers.

      Many employers are checking your credit to see if you have any convictions, liens, garnishments which are on your public records section. Insurance companies in my opinion use credit scores to jack up your rates, how does your credit score bear on your driving record, your home owners insurance ???

      If you are debt free, it is incredibly easy to have a high score! Keep four cards with high limits that you use once or twice a month and pay those card off every month, then you are good to go!

      • Ross says


        I’ve never owned a business with employees before, so obviously you have more of an insight than I do.

        I would just think that if I were interviewing people to work for me and represent my company, I would want to find out as much as possible about that person (especially if it’s for some type of financial position like you mentioned), and I really think that a person’s credit history says at least a little something about a person’s character.

        I agree about how easy credit-building is with no debt. Just as long as the balance is paid off every month and not forgotten about.

  11. Leon Rupp says

    I recently applied for a refinance on a mortgage loan. The credit scores were as follows:
    Transunion 820
    Equifax 701
    Experian 678
    why such a difference in scores????
    The only blotch on my credit is a $19 disputed bill from trash service.

    • Ryan says

      I’m not sure, Leon. I would get a credit report from each of the bureaus (you can get one free credit report each year from each of the bureaus). Then compare each report to the others and make sure they are all accurate. It’s possible there is some erroneous or outdated information on one or more reports which is bringing your score down. You should also contact the credit bureaus to inform them about the bill that is in dispute. It’s possible that is bringing your score down, and having that removed could improve your credit score. Best of luck.

  12. Garen says

    Hey Ryan,

    Recently, I bought a townhouse (well rented one) and I talked with the leasing manager. The funny thing is we got to talking and guess a lot of leasing agents don’t really pull your “score”. In fact, they just check your credit report over the last 2-3 years. As long as there are no negative marks, bankruptcies, ect they will accept you, but if there are more than 5 marks they will just require a bigger deposit prior to moving in. It might be different from city to city or state to state. They all have their own rules and regulations.

    It might be a good idea to talk with your lender to see if they go by your credit score along because you could have a sub-par credit score or lack of credit but no marks which would allow you to get accepted.

  13. Markus says

    I just recently ( with in the last 90 days) paid off the last and only 2 bad items of my debt but it has not dropped off my credit history. I have called each of the credit bureaus (Equifax & Experian) and all of the stated that even if you have paid them off they can still stay on your report for the full seven years. I thought it was kind of strange I had one other creditor on my report, paid it off and it dropped off with in 30 days. What can I do to get paid/closed items off my report.. The credit bureaus won’t even let me dispute it…

    By the way none of the bad items are on my Trans Union report..

    • Ryan Guina says

      The only time you can dispute a record on your credit report is when the record is an error. If the record on your report is true, then you can’t have it removed. Items usually remain on your credit report for 7 years, whether the item is good or bad. The report will typically show the line of credit, the available balance, the date it was opened, the payment history, and several other factors. All of these details are used to help create your credit score. As time goes on, the older elements make up a much lesser part of your score. So for now, the best thing to do is to continue having a good credit record. That will help you improve your score.

  14. Sunman says

    Hey Ryan,

    I’m coming off have poor credit because of neglected credit cards I started using as a teenager. After they were maxed out I just paid the minimum then eventually stopped doing that and for years was strictly cash and carry.

    Two years ago I checked my credit score and of course it was about 520. Since then I’ve paid off all my bill (many were ‘settled’ – not sure of that has an adverse effect or not) – now debt free, but my score has flatlined around 650 and the dings are not going to be off my credit score for another 4 years.

    I just got a credit card to stimulate my activity, but I’m wondering what else I can do to get my credit built up faster. Any advice I would greatly appreciate.



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