What Are the Credit Score Ranges & What Do They Mean?

What Is a Credit Score?

Your credit score is a three-digit number that you can find on your credit report. This score reflects how well you’ve handled your finances based on any accounts you have open, your payment history, and any other bills you owe.

Financial institutions, like banks and other lenders, use your credit score to determine if you’re a good candidate for a credit card or loan. A car insurance company might also check your credit score when determining your quote. Utility and phone companies can also use your credit score to determine how much of a security deposit you should pay, if any. While potential employers can check your credit history, they receive a modified credit report that excludes your credit score while including your other personal and financial account information.

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What Contributes to Your Credit Score?

There are five major factors that contribute to your credit score, and each of these factors impact your score differently.

• Payment history. When you’re applying for a new credit card or loan, lenders want to be sure that you’re going to pay off your debt on time. Even one late payment on an account can negatively affect your credit score. This factor accounts for 35% of your credit score rating.
• Credit utilization. You can calculate the credit utilization ratio of your revolving accounts by dividing your total amount in balances by the total amount of all your revolving credit limits. Credit utilization is 30% of your credit score.
• Length of your credit history. The amount of time that you’ve been financially responsible can help or hurt your credit score. Your credit history length is calculated based on how long ago you opened your first credit account, when you opened your last credit account, and the average length all your accounts have been open. Credit history length makes up 15% of your credit score.
• The variety of your credit accounts. Lenders like to see that you can handle paying different types of credit accounts. Credit cards, student loans, mortgages, and car loans are just a handful of accounts you can use to diversify your credit report. This factor accounts for 10% of your credit score.
• Newly opened accounts and inquiries. Apply for new credit accounts and loans sparingly. Too many hard inquiries or newly opened accounts can negatively impact your credit score. How you handle new credit makes up 10% of your credit score rating.

The Types of Accounts that Affect Credit Scores

There are two main types of accounts that affect your credit scores. These accounts keep detailed records of your debt and how well you pay off the debt.

• Installment credit. Installment credit accounts typically involve loans that have fixed amounts. You usually can set up monthly payments toward the loans until you pay them off. Examples of installment credit accounts are mortgages, student loans, and personal loans.
• Revolving credit. Revolving credit accounts have balances and limits that can fluctuate without having a fixed term. You usually have a credit limit with a revolving credit account. There’s minimum amounts you’ll need to pay each month that depends on how much of the credit you’ve used. Examples of revolving credit accounts are credit cards, personal lines of credit, and home equity lines of credit.

What Are the Credit Score Ranges?

Now that you know the credit score basics, it’s important to know which credit score range you’re in. Credit scores range from 300 to 850, with 850 being the best score you can have. While the exact scores in each range vary depending on the scoring model, there are typically five credit score ranges your score can fall in: poor, fair, good, very good, and excellent.

What Does Each Credit Score Range Mean?

The credit score range that you fall in can help or hinder how easy it is for you to open a new credit account with low interest rates.

• Excellent credit. If you have a credit score that’s at least 800, you’re in the best range possible. You shouldn’t have much trouble opening a new credit account, and your interest rates and fees are probably the lowest they can be.
• Very good credit. If your credit score is in the mid-to-high 700s, you probably fall in the very good credit score range. This rating gives you access to a variety of credit accounts along with much better interest rates.
• Good credit. Credit scores that fall between the upper 600s and the mid-700s are in the good range. As of February 2021, this range is typically where the average credit-using American falls. You can qualify for a wide variety of loans and credit accounts with a fair credit score. However, your interest rates might still be higher than the best available rates you can get.
• Fair credit. Having a fair credit score rating might qualify you for some loans and credit accounts. If you have a fair credit score, the score might be in the upper 500s to the mid-600s. When you open a new credit account with fair credit, the credit limit might start off low, and the interest rates might be higher than you’ll want.
• Poor credit. If you have poor credit, your credit score will fall between 300 and the mid-500s. This type of credit score rating can make it difficult for you to open new lines of credit. Poor credit might result from a recently filed bankruptcy, high amounts of debt, or collection accounts and other civil judgments owed.

How to Find Your Credit Scores

Finding out your credit score is a simple process. You’re entitled to one free credit report each year from the three nationwide consumer credit reporting bureaus—Equifax, Experian, and TransUnion. Your credit report can include your credit score, the latest history of your credit accounts, and personal information, like your current and past addresses along with your current and past employers. Visit the credit bureau’s website to get your free annual credit report. You can also track your ongoing credit score ratings by signing up for accounts with the credit bureaus or other credit monitoring services.

How to Increase Your Credit Scores

If you have a less than favorable credit score, there are things you can do each month to improve it. Some simple, repetitive tasks you should try are:

• Pay your bills on time. Payment history is the most important factor that affects your credit score. Pay on your credit accounts each month—even if you’re only paying the minimum amount allowed. Lenders report whether or not you made the monthly payments on time.
• Keep your credit utilization low. The rule of thumb is to keep your credit utilization ratio under 30%. If you find yourself with high balances on your account, pay them off before the lenders report to the credit bureaus. Continuously paying on your balances and limiting your use of the accounts will lower your credit utilization.
• Limit your credit applications. Hard inquiries stay on your credit report for two years, and too many hard inquiries can negatively impact your credit score. The hard inquiries still count against your credit score even if your credit application was denied. Only apply for new accounts that you need and have a decent chance of getting.
• Dispute inaccurate information. If your credit report has an account that’s not yours, an incorrect balance owed, a late payment that was on time, or other inaccuracies, you should dispute the incorrect information with the credit bureaus. You can file a dispute with the credit bureau that you’re viewing the information. Disputes are free of charge, and they won’t negatively hurt your credit. If the information is placed in error, removing it can help improve your credit score.

Having an excellent, very good, or good credit score rating can help you manage your credit accounts with ease. The higher your credit score, the less trouble you’ll have applying for credit accounts with higher limits and lower interest rates. If you want to improve your score, work toward paying off credit card debt you might have, pay your others debts on time, and research other budgeting tips that can help you manage your finances.