You’ve heard of credit scores, but you’re unsure what they mean. What’s more, even if you know your credit score, you may not know how lenders view credit scores or what your score entails. What is a good credit score versus a bad credit score? And what does it mean if your score is fair?
Although it’s important to know your exact credit score, it’s equally important to understand the implications of your credit score. To sort it all out, you’ll need to know the value of credit score ranges and what each one means.
Not only should you understand how FICO credit score ranges work. You need to stay on top of any changes coming down the line on how your FICO score is calculated. According to several sources, the Fair Isaac Corporation is making changes to its credit score formula in 2020, though the specifics of these modifications remain not totally clear. In general, consumers in good financial standing could expect to see their scores increase a little bit. However, for the many Americans already in a straightened or poor financial situation, the changes could mean a decrease in their credit scores.
Multiple credit scoring models exist, including FICO, VantageScore and others, which have varying similarities and differences. FICO, however, is one of the most common scoring models used by lenders. Read on for a deep-dive into FICO credit score ranges and how they affect your financial options.
FICO Credit Score Ranges
Your credit score falls into a set of FICO credit score ranges that credit bureaus use to judge creditworthiness. FICO comes from the Fair Isaac Corporation — originally Fair, Isaac and Company — the firm that established the FICO credit score and pitched them to lenders to use.
If you’ve ever wondered, “What is a FICO score?” take a look at this credit score chart to see the current FICO credit score ranges, according to myFICO:
|Credit Score||Credit Rating||Potential Impact|
|300-579||Poor||A fee or deposit may be required to get credit approval. Applicants with this rating may be denied credit altogether.|
|580-669||Fair||Credit applicants with scores in this range are considered subprime borrowers. Applicants may get approved but usually with less favorable rates and terms.|
|670-739||Good||Credit applicants with scores in this range tend to get average terms and rates from lenders.|
|740-799||Very Good||Credit applicants with scores in this range are more likely to get better-than-average rates from lenders.|
|800-850||Exceptional||Credit applicants with scores in this range are at the top of the list for the best rates from lenders since they pose the least risk.|
Here is a further breakdown of the different FICO credit score ranges and their implications for you as a borrower. If you’re wondering whether there is an average credit score, it depends on the age group you are in. According to 2019 data from Experian, people 30 to 39 score 673 on average.
Poor Credit: 300-579
According to Experian, 16% of people have poor credit. A poor credit score often occurs if you have a payment history riddled with delinquencies. Credit users with a FICO credit score in this range tend to have high balances, often right up to the credit limit. People with a poor credit score may have a collections account from an unpaid medical, cellphone or utility bill. Bankruptcy could also be a factor.
If your FICO credit score is in the lower half of the poor credit score range, then you might have considerable negative marks. In addition to collections accounts and possible bankruptcy, people with credit scores in this range typically have most trades in repossession, foreclosure or charge-offs. In short, there will be a consistent record of nonpayment, which is extremely risky in the eyes of lenders.
Fair Credit: 580-669
Approximately 17% of people fall into the category of fair credit, according to Experian. People with a fair credit score will typically have open credit lines that also have high balances. The high balances are reflected in a higher credit utilization ratio — the ratio of your outstanding balance to your credit limit. When your credit utilization ratio is high, your credit score tends to decline. Ideally, lenders want to see a credit utilization ratio of 30% or less.
People with a fair credit score may be currently delinquent or have a history of delinquency — but not a consistent history of nonpayment. A few negative marks in your credit history can result in a fair credit score, but it’s usually fixable over time. With responsible spending and smart use of your credit, you can raise your personal credit score from fair to good credit.
Good Credit: 670-739
A little over a fifth of credit users — 21% — have good FICO credit scores, according to Experian. Having a good credit score typically means you have open credit lines and cards, and you make all minimum payments on a timely basis. With other bills, too, you’ve paid on time and nothing has gone to collections.
According to Experian, only 8% of credit applicants with FICO scores in this range are likely to become seriously delinquent in the future. Due to lower risk, lenders tend to offer people with good credit average terms and rates on credit cards and loans, compared with less favorable terms offered those with fair or poor credit.
Very Good Credit: 740-799
According to Experian’s data, the majority of people it scores — 25% — fall into the very good credit range. What separates good FICO credit scores from very good and excellent credit scores lies in the details. For instance, to get better than good credit, you need more than just timely payments. It takes having multiple credit lines, maintaining low balances and keeping credit utilization ratio at no more than 30%.
If you fall into this FICO credit scoring range, you can also bump up your score a bit by acting strategically: For example, you can apply for a new credit card and keep the balance very low— just enough to keep the account active. By doing so, you can reduce your credit utilization ratio by offsetting the higher balance of another credit card.
Exceptional Credit: 800-850
The percentage of people with exceptional credit equals 21%, according to Experian. People with an exceptional score will have an established credit history over 36 months, including multiple tradelines from different types of lenders such as credit cards, auto loans, retail cards and home mortgages.
To receive a score of 800 and above, all loans will be current with no record of delinquency. The balances on the credit cards will consistently be lower than 30% of the overall limit. With such an established history of creditworthy behavior, people with exceptional FICO credit scores usually get the best interest rates, terms and options when applying for new credit cards.
What Is Included in Your Credit Score?
Your credit score includes a variety of factors, so it’s important to know what composes your FICO credit score. A credit score will include all credit, borrowing and billing information that has been reported by that company to the credit bureau. The amount you borrowed, how much you pay and the type of loan you take out are all included in your credit report. These factors are also included in the calculation of your credit score.
When it comes to utility, medical and cellphone bills, their impact on your credit score is less direct but still influential. If you make all of your medical and utility bill payments on time, they will not be reported to the credit bureau. However, if you have a medical, utility or cellphone account that goes into collections, it will be recorded in your credit report. Naturally, this will be included in the calculation of your credit score.
Lastly, your annual income, home value, rental payment and bank account balance are not included in your credit report and will not be included in your FICO credit score. Annual income, however, is required for credit card applications and other lines of credit.
How Credit Inquiries Affect Your Score
In general, lenders initiate a hard inquiry when checking your credit for a credit card or loan. While having excessive inquiries is not good, a single, occasional inquiry will not have a significant impact on your score. In some instances, a lender may even use a soft pull inquiry, which unlike a hard pull inquiry, does not affect your personal credit score.
The Bottom Line
In short, your FICO credit score will mirror how you use credit. If you use multiple sources of credit responsibly by maintaining low balances and paying on time, you’ll likely receive an excellent credit score. If you have higher balances and missed payments, the score will be lower.
A credit score is one of many factors used in the credit decision. With knowledge of your FICO credit score and credit score ranges, you can make better credit management decisions and more easily determine which new credit card and loan products you might be eligible for.