Your credit score is a key component of your overall financial health, as it decides whether you can borrow money easily, have access to the most favorable interest rates, and even rent an apartment. Understanding what constitutes a good credit score, how to calculate it, and how to maintain it is crucial to being financially healthy.
What is a good credit score?
Credit scores usually vary from 300 to 850; the higher, the higher the creditworthiness of the shopper. To a giant FICO scoring model, good is between 670 and 739. VantageScore, another big model, holds a good range between 661 and 780. Putting your figure in these zones can make it a point for an improvement in opportunities for receiving credit and loan favor.
How do you stack up against other loan borrowers?
The January 2025 average FICO score for the US is 715. This means almost all of the nation falls within the “good” credit tier. To compare, see how you stack up with the following average scores by age group:
- 18-29 years: 659
- 30-39 years: 677
- 40-49 years: 699
- 50-59 years: 730
- 60 and older: 743
These demonstrate that credit scores increase with age, generally as a result of more extensive credit use histories and more established patterns of credit management.
It is also important to review your credit score regularly so that you can keep tabs on your finances and know where to make some adjustments. You are eligible for a free report from each of the three big credit bureaus—Equifax, Experian, and TransUnion—every 12 months on AnnualCreditReport.com. Other companies such as Credit Karma provide free credit scores and reports and tools which will help you learn and monitor your credit.
Why do I have more than one credit score?
Having more than one credit score is not uncommon since different bureaus and models will use different criteria and data to compute them. The reasons why they are different are:
- Data variations: Not all creditors report to all bureaus, thus there are variations in the data that each bureau maintains in their files.
- Scoring models: FICO and VantageScore use various algorithms, so they might return different scores for the same credit information.
- Timing: Reporting agencies update their records at different times, and you get different scores depending on when you inquire.
Knowledge of the differences might enable you to better grasp your credit score and eliminate any errors.
What affects my credit score?
Several critical elements determine your credit score:
- Payment history (35%): Your score always is better with payment on time, but missed payments or late ones can lower it substantially.
- Credit utilization (30%): Balance carried as a percentage of available credit on credit cards. Below 30% is optimum, and less is better.
- Length of credit history (15%): Longer credit history length can help to increase your score, as the experience of handling credit is checked.
- Credit mix (10%): A combination of credit accounts, including credit cards, mortgages, and installment loans, can benefit your score.
- New credit (10%): Having a large number of new credit accounts in a short time can be seen as risky behavior and will decrease your score.
Maximizing and maintaining your credit score
Having and keeping a good credit score takes good money habits:
- Make on-time payments: Pay bills, not credit cards and loans, on time. Automatic payment or reminders will help.
Try to keep your balances low compared to your credit limits. Paying your balances in full each month is the best.
- Keep old accounts open: Keeping accounts open for long periods can build up your credit history, which will be good for your score.
- Maintain new credit inquiries low: Each new application is a hard inquiry, and that will have a negative impact on your score for a little while. Do not apply for new credit.
- Check credit reports regularly: For errors or fraud which may harm your score. Get errors removed ASAP.
What Is the minimum mortgage credit score to purchase a home?
Minimum credit score to get mortgage varies by loan type:
- Traditional loans: Typically demand at least a 620 score.
- FHA loans: Will accept scores of 500 or lower, but 580 and above is preferred for lower down payment programs.
- VA loans: Typically demand at least a 620 score.
- Jumbo loans: Typically demand at least a 700 score, with an average of 740.
Remember that higher scores can result in lower interest rates and loan terms.
Credit score myths
There are a lot of myths about credit scores. Here are some that have been tested:
Myth: All people 18 and above have a credit score.
- Fact: No. You must have an open credit account for a minimum of six months before you can create a credit score.
Myth: Checking your own credit score reduces it.
- Fact: Viewing your own credit report is a “soft” inquiry and will not lower your score.
Myth: Paying off unused, old credit cards will raise your score.
- Fact: Closing old accounts hurts your score since it reduces the average age of accounts.
- Fact: Closing accounts reduces your available credit and decreases your credit history, which decreases your score.
Buy Now, Pay Later (BNPL) and your credit score
With BNPL, consumers can buy now and pay later using BNPL services. The impact of BNPL on your credit score depends on the provider and payment management:
- Habits of reporting: The majority of BNPL lenders do not report payment history to the credit bureaus. A non-payment can be reported to collections, and hence your credit gets harmed.
- Credit utilization: BNPL usage doesn’t typically affect your credit utilization ratio because these accounts aren’t reported to the credit bureaus.
- Debt accumulation: Abuse of BNPL can lead to debt buildup and therefore influence your ability to manage other credit debt.
Responsible use of BNPL services and knowledge of the terms are necessary to avoid negative impacts on your credit.
On-Time rent payments can boost your score
Rent payments never used to impact credit scores. Recent innovations allow renters to benefit from timely payments:
- Reporting services: Some services have the ability to report your rent payments to credit agencies, boosting your credit score.
- Landlord participation: Not all landlords report rent payments, but you may be able to be part of programs that do.
Paying rent on time and reporting it regularly can help build a good credit history.
