What is a good credit score?
Before discussing what a specific number or range you should aim for when it comes to your credit score, it’s important to understand what credit score ranges are.
Credit scores typically range from 300 to 850 in the most common scoring models, like FICO® (Fair Isaac Corporation) or the VantageScore® 3.0 model. The higher the number, the lower the risk to lenders.
Looking at the VantageScore® 3.0 model, the scoring model is broken down into the following categories:
- 850-781: Superprime
- 780-661: Prime
- 660-601: Near Prime
- 600-300: Subprime
By having a score in the 781 to 850 range, you demonstrate to lenders that you are a lower-risk borrower, and they, in turn, are more likely to give you favorable terms on your loan or when extending credit to you.
Meanwhile, a credit score below 600 would likely make lenders hesitate when offering you a loan.
Based on recent data, the average credit score in the United States sits at somewhere between 700 and 720, meaning you should always aim for at least this number (or higher) when trying to improve your score.
How do I check my credit score?
There are several ways to check your credit score. By Federal law, each of the three national consumer credit reporting companies (Equifax, Experian, and TransUnion) is required to provide consumers with a free credit report every 12 months.
This free report provides information on your credit account history, how many credit inquiries or checks into your credit history have been made and your history of making on-time payments.
For more frequent checks, you can rely on credit score services like FICO® (the same organization that provides the scoring model), your bank of choice or another financial institution to learn more about your score and how it will affect your credit applications.
Some organizations may bundle these score reporting services with other services like identity protection, but in most cases, getting a credit score through a free source should be sufficient for regular monitoring.
At Associated Bank, for example, we’ve partnered with Experian® so you can check your credit score for free using our online portal or mobile app¹, providing you with the most up-to-date information available on your credit score.
Along with providing your score for free, we also offer a few additional services to customers, including:
- Credit Score Monitoring: Ensure you stay on top of any changes in your credit score over time.
- Credit Education: Gain access to various credit educational materials and resources.
- Score Simulator: Estimate the impact on your credit score when taking certain financial actions.
- Mobile Credit Alerts: Get instant updates to changes in your credit score.
- Identity Protection Tools: Ensure your credit is safe from outside influences through our monitoring and identity protection services.
Reviewing your credit score regularly can help ensure your score stays in the good to excellent range.
If you find that your score isn’t in the favorable range or better, there are a few steps you can take to get your it to 720 or higher. The first step is to create a plan.
What are the steps to creating a plan?
Creating a plan can keep you accountable for your financial decisions and will help you stay on track to achieving your goals. With this in mind, knowing what will impact your credit score is a good place to start.
Understand what impacts your credit score and when to take action
There are five criteria that impact your credit score, and each has different weights assigned. Under the FICO® scoring system, that breakdown is:
- Payment history (40%): Whether you make your payments in full and on time. Note that this is why late payments can have such a serious impact on your credit.
- Depth of credit (21%): The age of your credit accounts, including your average, oldestand youngest account age. This also looks at the types of credit you use, including revolving credit (credit cards, lines of credit) and installment loans (mortgages, auto loans, personal loans).
- Credit utilization (20%): How much credit you use in proportion to how much credit you have access to. Generally, credit utilization focuses more on sources of revolving credit such as credit cards.
- Balances (11%): The total outstanding balances of all your credit accounts.
- Recent credit (5%): The total number of credit accounts you’ve opened recently, as well as any hard inquiries on your credit. Generally, opening several new credit accounts close together is a red flag for lenders because it could indicate a change in your financial circ*mstances.
- Available credit (3%): How much credit you currently have available on your revolving credit accounts.
Understanding these factors is an important first step in identifying areas of improvement on your credit report.
Say you notice something on your report that doesn’t seem accurate. You can always contact one of the credit monitoring services for clarification and to dispute any potential errors you come across.
Understand what impacts your credit score and when to take action
Setting up payment reminders will help ensure you have a strong payment history on your accounts and do not miss a payment due to something like a late bill that arrives in the mail.
Review all outstanding balances and keep your credit limits below 30%
Just as a report card hints at how much attention a student has placed on their schoolwork, your credit score provides clues to lenders about your recent financial history, allowing them to make informed decisions about whether to loan you money, and at what interest rates.
For this reason, you should always review all outstanding balances that will show up on your credit history to ensure they paint a positive picture of your current financial status. For example, paying off outstanding debt is one way of improving your credit score.
Similarly, you should take care to ensure your outstanding credit balances remain below around 30% of your total credit limit. The term for this number is "credit utilization rate," and generally refers to how much of your credit you're actively using at any one time.
For example, if you have a total credit limit of $50,000 across all your accounts and are currently using $10,000 of it, you will have a credit utilization rate of 20%.
One common solution employed by borrowers who regularly use and pay down their credit cards that solves both of these issues is to request a credit increase, giving you more flexibility in how much you can borrow and helping to ensure your credit utilization remains low.
Keep your oldest line of credit open
Minimizing the number of open accounts by closing older accounts might sound like a great strategy but it can sometimes come with the unintended consequence of negatively impacting your credit score. When deciding whether to close an account, make sure you keep your oldest account open to avoid disrupting your credit history.
Keep a good mix of credit types
Among the many types of credit available are personal loans, credit cards, auto loans, home mortgages and lines of credit. Lenders like to see how you manage different credit types so making sure you have several forms of credit in your financial record makes a difference.
Wait six months between new credit applications
Imagine you are looking to purchase both a car and a home while also taking out a personal loan for other expenses you have coming up. Each new account you apply for is considered a hard pull on your credit and will affect your credit score.
To avoid this situation, limit the number of credit applications you have during a given period. Generally, six months between applications is a good baseline.
By following these best practices, you are setting yourself up for financial success and developing a solid roadmap for financial decisions.
Your credit score is only one part of your financial life, but by prioritizing smart financial choices, you are also having a large impact on other areas, such as budgeting, debt managementand taxes, to name a few.
Regularly monitor your financial health
Creating a plan is an important step for making sure that you stay on track to reaching your financial goals. Be consistent and regularly review and update your plan for long-term peace of mind in your financial life.
At Associated Bank, we offer a number of financial tools and resources like credit score monitoring, bill pay² and budget trackers to help our customers make informed financial decisions.
If you have any questions about your credit score or are interested in taking advantage of some of our credit monitoring services, please reach out to us online or visit us at one of our local branches.
We’d be happy to discuss how our experienced local bankers can help you get on track toward your financial goals.
