Credit · September 04, 2020

A Closer Look at Credit Score Ranges and What They Mean for You

You probably know your credit score is important. After all, a good credit score can mean the difference between securing car loans and mortgages and not qualifying for a loan at all.

However, understanding what makes a good score is a little more complicated. Each of the three reporting bureaus—Experian, TransUnion and Equifax—calculates its credit scores in slightly different ways. The differences could translate into higher interest rates or save you thousands of dollars.

Here's how the three credit report bureaus calculate your score, as well as a few tips to improve it, both in the short and long term.


Understanding why credit scores are important

A credit score is a snapshot of your potential ability to repay a lender. Lenders look at a credit score report, a breakdown of your credit history that shows your payment history, loan balances and open accounts, among other key financial information.

The credit score range runs from 300 to 850. This range is used by banks, credit cards and other lenders to determine your creditworthiness. The higher your credit score, the better. It means lenders will likely find you less risky compared to those with lower scores. This can translate into more favorable lending terms, including interest rates and approval for higher loan amounts.

All three major credit reporting bureaus use this credit score range. However, how your credit score is calculated is slightly different depending on the bureau.

A breakdown of the credit score ranges

Two primary companies are used to calculate credit score ranges: FICO and VantageScore.

The Fair Isaac Corporation, called FICO, is the most common score model. Its credit score range is as follows:

  • Very poor: 300 to 579. Scores in this range might have to pay a fee or deposit on loans or don't get approved at all.
  • Fair: 580 to 669. A score in this range typically makes you more likely to get approved, but it may not get you access to the most competitive rates.
  • Good: 670 to 739. Most people fall in this range. They're likely to get approved and will see some competitive rates.
  • Very good: 740 to 799. Scores in this range usually have little trouble getting approved and often see better rates.
  • Excellent: 800 to 850. Scores in this range have the best chance of getting approved and seeing the best possible rates and lowest fees.

The other model is called VantageScore. It was developed in partnership between the three major credit reporting bureaus. VantageScore's credit score range is slightly different, but the outcomes are similar for each category.

  • Very Poor: 300 to 499
  • Poor: 500 to 600
  • Fair: 601 to 660
  • Good: 661 to 780
  • Excellent: 781 to 850

The primary difference between the two scores is that FICO pulls in data from each agency individually and then combines them to develop a score. In contrast, VantageScore uses a weighted average of the three agencies in calculating the credit score range.

How credit scores are calculated

Just as with the credit score ranges, there are slight differences in how FICO and VantageScore calculate the scores. It's why your rating might vary slightly, depending on which bureau pulls your credit report.

FICO uses this formula to calculate your credit score:

  • 35%: Payment history, including the number of late payments and how late they were
  • 30%: Amount owed, which is the ratio of how much debt you have to pay to your available credit
  • 15%: Length of credit history, how long your accounts have been open
  • 10%: Credit mix, the types of credit or loans you have
  • 10%: Recent credit applications, the inquiries on your credit report

VantageScore doesn't reveal much about its formula using a system that ranges from extremely influential to less influential.

Here are its rankings:

  • Extremely influential: Total credit usage, the amount owed and available credit
  • Highly influential: Credit mix and experience
  • Moderately influential: Payment history
  • Less influential: Age of credit history and recent credit applications

Lenders often use their own standards based on scores. Depending on where your score lands, it might be considered fair by FICO and good by VantageScore.

How to improve your credit score

The biggest factor for your credit score is your payment history. Paying your bills on time is critical to a good score. Try automatic payments and setting up reminders to ensure you never miss a payment.

Your credit balance is one of the most heavily weighted factors on your credit score, so a good rule of thumb is to keep the ratio of credit to debt at 30% or less. Avoid closing credit card accounts—even if you don't use them often, they can negatively impact your score and lower your overall available credit. Check your credit report annually. That way, you can check for areas of improvement and fix any errors you might see. Each bureau allows you to request a free report annually.

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