What is a good credit score? This is what your score means.
What makes a good credit score? Here’s how they work and what factors can affect your score:
Your credit score is not important unless you are getting a loan, renting an apartment, insured, buying a home, avoiding paying deposits to a utility company, or attempting to land employment.
got it. As long as you’re not off the grid, they’re really important. The average credit score in the US is 717. FICO, a data analytics company whose scoring models are used in most lending decisions. It is considered a good score. However, millions of Americans still struggle to raise their own, and low credit scores can make achievements even more difficult.
Anamaria Rusaldi, who leads Stanford University’s initiative for financial decision making, said saving money by having a good credit score will save you money as it will help you lower premiums and lower interest rates on your loans.
“Even with a car loan, the 1% point difference on a mortgage is a huge savings,” Rusardi said. “If we don’t have a good score, we won’t actually have credit. We’re closed from borrowing, so I say the financial system is not tolerant.”
Here are some things you need to know about your credit score and how to grow yours.
What is a credit score?
A credit score is a three-digit number that shows how likely you are to pay back your money when you borrow it, based on your credit history and data from your main credit department.
“I always explain my credit scores as my students’ financial GPA,” Rusardi said. “We need to be able to utilize our best performance to signal those who want to work with us that we are good borrowers.
The FICO score used in 90% of lending decisions is calculated using five criteria, but the weights for each category may vary from person to person.
For example, FICO says that the scores of people with shorter credit history can be calculated differently than those who use their credits for a long time.
How is your credit score measured?
The first and most important thing that affects your score is your payment history. Whether or not you paid your past credits and how you paid generally account for 35% of your FICO score.
The second most important thing is how much you owe it now, and generally accounts for 30% of your score. The amount is important, but credit usage is also important. If a person is using all the credits available, it can show that they are over-expanded and are likely to miss a payment, FICO says.
The third aspect, the length of your credit history, generally accounts for 15% of your score. The age of the oldest account, the latest account, and the average age of all accounts will be played in the score.
The fourth and fifth categories generally account for 10% of the score, respectively. They are your credit mix with the amount of new credit you have. Opening multiple new credit lines in a short time can cause your score to drop, especially if you don’t have a long credit history.
Credit mix reflects the different types of credits you manage. It can include credit cards, mortgages, car payments, and more. There are several types of credits, and payments can increase your score by making daily payments.
What is the best credit score you can get?
The highest FICO score you can achieve is 850. This is a perfect score and you don’t need to get the best conditions and fees when borrowing.
The FICO score can be divided into five ranges: poor, fair, good, very good, exceptional. According to Experian data, 71% of Americans have a good score or higher.
The score of about 13% is 300-579, in the “poor” range. Another 16% score is 580-669, which is in the “fair” range. The next 21% is in the “good” range. That is, you have a score between 670 and 739.
The percentage of people, which is 28%, falls within the “very good” range and has a score of 740-799. In the “exceptional” range, it is 22% of Americans with scores between 800 and 850.
What is the average credit score by generation?
According to other Experian data, credit scores tend to increase over time. The average FICO score for 2024 was as follows:
- Generation Z: 681
- Millennials: 691
- Generation X: 709
- Baby Boomer Generation: 746
- Silent Generation: 760
How do you increase your credit score?
A common misconception about credit scores is that checking your credit score will lower it. That’s not true. However, lenders who check their credit scores, like when buying a car or opening a credit card, can reduce them for a short time, says Lusardi.
You can see your own things frequently through banks and credit unions, and online at Myfico.com.
If you’re trying to raise your score, the best thing you can do is pay off your debts, Rusardi said. She also recommends using only about 70% of the credits available to avoid showing that you are spending too much.
In terms of improving the credit mix, Lusardi said it is important to manage the different types of credits he has now. If you don’t have a student loan, mortgage, or another loan, but don’t have one credit card, we don’t recommend opening a new credit line just to increase your FICO score.
“In this case, I wouldn’t actually be too worried about it,” Rusardi said. “I don’t think it’s worth opening a new credit line because it’s just 10% and without other sources of debt.”
To maximize the length of your credit history, don’t close your old credit card accounts, Rusaldi said. She also warns you to open multiple new credit lines at once, as it could indicate that you are in financial trouble.
Reach Rachel Barber at rbarber@usatoday.com Follow her at x @rachelbarber_