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When you apply for new credit, such as a loan or credit card, your application for financing will almost always include a review of your credit score. Other applications, including new apartment leases or setting up utility services, usually include a credit score review as well. 

A good credit score can work in your favor in these situations and others. Here’s what it means to have a good credit score — along with tips on how you can work to build good credit.

What is a credit score and what does it mean?

A credit score is a three-digit number that helps lenders and others predict the risk of issuing financing or services to consumers. A credit scoring model calculates your credit score based on information found in your credit report

The specific job of a credit scoring model is to predict the likelihood that a consumer will pay any credit obligation 90 days late or worse within the next 24 months. This purpose is known as the stated design objective of the credit scoring model. 

A higher credit score means a consumer is less likely to pay a credit obligation severely late (90 days late or worse) in the upcoming 24 months, or put another way, is more likely to pay on time. A lower credit score means there’s a higher likelihood of severe delinquency based on the information found in the consumer’s credit report. 

How to read your credit score

In the United States, most lenders use two primary credit scoring systems — FICO® and VantageScore®. FICO, the older of the two credit scoring systems, touts on its website that it’s the choice of 90% of top lenders. 

When you apply for a loan or credit card, there’s a good chance that someone will review your FICO® Score as part of the application. Yet VantageScore credit scores are growing in popularity as well. From March 1, 2021 to Feb. 28, 2022, more than 3,000 companies reviewed 14.5 billion VantageScore credit scores, according to a report by global management consultant Oliver Wyman showcased on the VantageScore website. 

Most FICO and VantageScore credit scores range from 300 to 850. Within this credit score range, a higher score communicates that you’re a lower credit risk. A lower credit score signals the opposite. 

Here’s what your credit score range tells lenders about your creditworthiness. 

FICO® SCORE RANGECREDIT SCORE RATING
800 to 850
Exceptional
740 to 799
Very Good
670 to 739
Good
580 to 669
Fair
300 to 579
Poor
VANTAGESCORE® CREDIT SCORE RANGECREDIT SCORE RATING
781 to 850
Excellent
661 to 780
Good
601 to 660
Fair
500 to 600
Poor
300 to 499
Very Poor

Benefits of having good credit

Earning a good credit score can pay off in many ways. Below are several potential benefits you might be able to enjoy once your credit crosses the threshold into good or better territory.  

  • Better qualification odds for financing (e.g., loans, credit cards, lines of credit, etc).
  • Lower interest rates.
  • Higher credit limits and loan amounts.
  • Easier qualification for leases (apartments, auto leases, business leases, etc).
  • Smaller deposits (or no deposits) for new utility accounts.
  • No security deposit for new mobile phone contracts.
  • Lower auto insurance premiums.
  • Savings on other types of insurance.
  • Better credit card rewards options (including travel rewards).

Of course, having good credit doesn’t guarantee you’ll be able to get a loan, lock in a lower insurance premium or qualify for any of the perks above. But a credit score in the good or excellent range is certainly likely to improve your odds in each of these scenarios. 

Pitfalls that can lead to bad credit

When it comes to your credit score, knowing what to avoid is often as important as knowing the positive steps you should take to build good credit. Payment history is the most important factor that shapes your credit score — worth 35% of your FICO Score and 40 to 41% (depending on the version) of your VantageScore credit score. Making a habit of paying your credit obligations on time every month is essential to your long-term credit score health. 

The second credit score pitfall to avoid is running up a high credit utilization rate. Credit utilization describes the relationship between your credit card balances and limits. If you run up a large amount of credit card debt and don’t pay it off in full during the same billing cycle, you risk increasing your credit utilization rate and decreasing your credit score. Plus, you’ll likely waste a lot of money on expensive interest charges incurred when you carry a balance.

On a positive note, if you work to pay down your credit card debt, you can generally lower your credit utilization rate. You will likely also reduce the money you spend on interest each month. 

Can’t afford to pay off all of your credit card debt at once? You might want to consider whether debt consolidation makes sense for your financial situation and goals. 

When you should fix your credit

You don’t need a perfect 850 credit score to receive solid financing offers. But if the condition of your credit is less than exceptional (based on the ranges above), it makes sense to work to improve your credit.

Lenders typically reserve their best offers for borrowers with excellent credit. Therefore, earning top-tier credit can literally help you keep more money in your bank account.

Even if you’re not planning to apply for financing in the immediate future, you never know when you might need to rely on your credit for something unexpected. It’s wise to keep your credit score in the best shape possible so that it’s ready and available anytime you need it. 

Ways to build your credit score

If you have no credit or you have a thin credit file (i.e., only a few established accounts), it may be wise to find ways to build your credit score. Below are several options to consider, depending on your situation. 

  • Open a credit card: Credit cards can be useful credit-building tools when you use them in a responsible manner. It might be helpful to look at credit cards designed for people who are new to credit first. Once you find an account that’s a good fit, be sure to pay on time and repay your full statement balance each month. 
  • Look into a credit builder loan: A credit-builder loan is a special type of installment loan designed for people who are new to credit or rebuilding damaged credit. Again, on-time payments are essential. You should also search for lenders that report to all three major consumer credit bureaus for this type of account to have the potential to help you build your credit scores with Equifax, Experian and TransUnion.
  • Become an authorized user: When a friend or family member adds you to a credit card as an authorized user, the card issuer may add the account to your credit reports as well. If the account has positive payment history and a low credit utilization rate, having it added to your credit reports could help you build credit history and might improve your credit score. You don’t even need to spend on the card yourself to get the benefits.

Frequently asked questions (FAQs)

The minimum credit score you need to buy a house can vary based on the type of mortgage loan you’re seeking and your lender. In general, you’ll need a FICO® Score somewhere between 500 and 700 to qualify for a home loan. 

For VA and USDA loans,there’s technically no minimum credit score requirement. However, individual lenders set their own guidelines that could make it difficult for you to qualify for a mortgage if your score falls below a certain threshold. 

Conventional loans are the most common type of mortgage in the United States. Most lenders require a borrower to have at least a 620 FICO® Score to qualify for a conventional mortgage. 

There’s no industry standard minimum credit score to purchase a vehicle. Individual lenders set their own guidelines regarding who they’re willing to work with based on credit scores and other factors. But it’s still true that the higher your credit score, the more likely you are to qualify for low interest rate and better loan terms. 

According to Experian’s State of the Automotive Finance Market Report (2022 Q2 data), “super prime” borrowers with a credit score of 720 or above qualified for an average APR of 3.68% on a used vehicle loan. “Deep subprime” borrowers with a credit score of 579 or below paid an average APR of 20.43% by comparison. 

It may be possible to qualify for a personal loan with bad credit. But borrowing with bad credit can be expensive. Therefore, it’s important to assess the situation carefully before you proceed down this path. If possible, try to work to improve your credit score before you borrow so that you’ll be in a better position to receive more affordable financing terms. 

Some lenders will not issue loans to consumers with bad credit (at least not without a co-signer). And those that will, such as payday lenders, are often predatory and may charge exorbitant fees and interest rates with short repayment periods. This combination can place a heavy burden on borrowers. 

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Michelle Lambright Black, founder of CreditWriter.com, is a leading credit expert with more than two decades of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting, and debt elimination. Michelle is also a certified credit expert witness, personal finance writer, and travel writer who's been published thousands of times by outlets such as Experian, FICO, Forbes Advisor, and Reader’s Digest, among others. When she isn't writing or speaking about credit and money, Michelle loves to travel with her husband and three children — preferably to somewhere warm and sunny. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

Glen Luke Flanagan is a deputy editor on the USA TODAY Blueprint credit cards team. Prior to joining Blueprint, he served as a deputy editor on the credit cards team at Forbes Advisor, and covered credit cards, credit scoring and related topics as a senior writer at LendingTree. He’s passionate about helping people understand personal finance so they can make the best decisions possible for their wallet. Glen holds a master's degree in technical and professional communication from East Carolina University and a bachelor's degree in journalism from Radford University.