We all know that the key to a successful financial life is good credit. Buying a home, securing sizable lines of credit such as auto or personal loans, and getting approved for credit cards, all hinge on your financial credibility. Even winning certain contracts or leases can depend heavily on your creditworthiness.

But how exactly do you earn credit, and what is the difference between a good score and a bad score? What credit scores are actually considered good? Knowing the answers to these questions are the key to maintaining high creditworthiness and increased chances of being awarded new lines of credit in the future. 

Although FICO and VantageScore are the primary credit scoring models used by credit bureaus to calculate your credit score, most lenders use a large variety of similar scoring models to come up with a score that mirrors what FICO or VantageScore would generate. So, when you obtain your score from one scoring model, you can feel pretty confident that your score won’t be that much different when calculated using another model. 

These scoring models will assign your creditworthiness with a number between 300 and 850. Your score will fall somewhere along with this range. Generally speaking, according to Experian, one of the three primary credit bureaus, here is what you can expect to see:

• 800 credit score to 850 credit score = Exceptional
• 740 credit score to 799 credit score = Very Good
• 670 credit score to 739 credit score = Good
• 580 credit score to 669 credit score = Fair
• 300 credit score to 579 credit score = Very Poor

The majority of Americans have credit scores that fall between 600 and 750. Scores that are within the exceptional category often require a delicate balance of debt to credit ratio and lines of credit quantities to maintain such a high score. 

The range of credit scores across America actually seems to be evenly distributed. Less than 1/5 of the population has, what’s considered, very poor credit. People who fall in this category are often required to pay higher fees, higher interest rates, submit a deposit or be denied credit altogether. 

Roughly 1/5 of Americans have fair credit, a score between 580 and 669, according to Experian. These individuals are usually subject to subprime loans. Subprime loans are those granted by lenders that contain interest rates that are higher. This is because people with credit scores between 580 and 669 may have blemishes on their records that indicate they carry a higher risk of defaulting on a loan in the future. 

Individuals with a good credit score, which is between 670 and 739 according to Experian, make up another fifth of the population. These individuals have a much better chance of getting a good interest rate on future loans or lines of credit because they carry a much lower risk of defaulting on a loan in the future. 

Those people with credit scores that fall between 740 and 799 are considered to have very good credit. They make up almost another fifth of the population. These individuals are certain to be offered a better than the average interest rate on any line of credit for which they apply.

The last fifth of the population has a score of 800 to 850. These borrowers are guaranteed the most exceptional rates and lending terms on any lines of credit they pursue. 

The three major credit bureaus (Experian, Equifax, and Transunion) calculate your credit score primarily using two main algorithms: FICO and VantageScore. These two algorithms differ somewhat on how they weigh different factors, but not enough to really justify any distinguishment between these two scoring methods. 

Looking at what factors to focus on most when attempting to get your credit score higher, you’ll need to focus on the following areas: 

• Payment History
• Credit Utilization
• Age Of Accounts
• Total Debt
• New Credit
• Hard Inquiries

Payment History

When determining your credit score, agencies investigate your history of payment, i.e., how many delinquent payments you have and for how long, your history of timely payments, and outstanding delinquent payments. 

Credit Utilization

How you use your credit is an important factor in determining your credit score. If your debt to credit ratio is high, that means your power to utilize your available credit is reduced. The more debt you incur in relation to your total available credit, the less income you have freed up to make future payments on additional lines of credit. 

The best way to utilize your credit to achieve a high credit score is to use your credit cards regularly but to pay them off every month. That way, creditors see that they can make money off of your line of credit. And they don’t have to worry about you going delinquent since you make timely, complete payments. 

Age of Accounts

Generally speaking, the older your lines of credit, the better. If you have older accounts with terms you are no longer happy with, try calling them and renegotiating the terms instead of closing down the accounts. Your active credit history is only as long as your oldest open account. The longer history you can establish, the more credibility you possess. 

Total Debt

How much you already have compared to your income and financial position is a big indicator of your ability to acquire and maintain new lines of credit. If you’re already swimming in a sea of debt, your credit rating is likely to go down. The exception to this rule is the lines of credit such as mortgages. 

New Credit

New credit isn’t necessarily a bad thing unless you’ve opened several credit lines in the last six months, and you’re applying for more. When you do open a new line of credit, make sure it’s the right choice for you with the terms you want, then wait at least six months before opening any other lines of credit. 

Hard Inquiries

Most lenders will check into your credit without solicitation from you. These are called soft inquiries, and they do not affect your credit rating. However, when you ask an agency to give you a line of credit, they will be conducting a hard inquiry that’s recorded on your credit report. While one here or there isn’t going to do any damage, if you’re asking for hard inquiries too often or too close together, your credit score is likely to go down.

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