Understanding the Credit Score Tiers
Most credit scoring models in the U.S., including FICO® Score and VantageScore, use a scale from 300 to 850. Lenders group these numbers into ranges to quickly assess an applicant’s creditworthiness. While the exact numbers for each tier can vary slightly between scoring models, the categories are generally consistent.
According to FICO, whose scores are used by 90% of top lenders, the ranges are as follows:
| FICO Score Range | Rating | What It Means for Lenders |
|---|---|---|
| 800 – 850 | Excellent | Applicants are seen as very low-risk. They receive the best available interest rates and loan terms. |
| 740 – 799 | Very Good | Applicants are dependable borrowers and will likely qualify for highly competitive rates. |
| 670 – 739 | Good | Borrowers are considered responsible. They are eligible for most standard loans but may not get the lowest possible rates. |
| 580 – 669 | Fair | Lenders proceed with caution. Applicants in this range may qualify for credit but with higher interest rates and less favorable terms. |
| 300 – 579 | Poor | This range signals significant risk to lenders, who may deny the application or require a co-signer or a secured loan. |
Source: myFICO
VantageScore uses a similar 300-850 scale but defines its ranges differently (e.g., 781-850 is “Excellent”). Regardless of the model, a higher score always means better financial opportunities.
How Lenders Use Credit Score Ranges
When you apply for a mortgage, auto loan, or credit card, a lender pulls your credit score to make a quick decision. Your score’s range helps them determine not just eligibility but also the terms of the offer.
- Excellent/Very Good: Lenders will compete for your business, offering low APRs and favorable terms to minimize the risk of you choosing a competitor.
- Good: You will likely be approved, but the interest rate might be slightly higher to offset a perceived, albeit small, risk.
- Fair: To compensate for increased risk, lenders may charge higher interest rates, require a larger down payment, or offer a smaller loan amount.
- Poor: Approval is unlikely. If an offer is made, it will probably be for a secured product, such as a secured credit card or a loan requiring collateral.
Key Factors That Determine Your Score
Your credit score is calculated from data on your credit report. The most significant factors include:
- Payment History (35%): A consistent record of on-time payments is the most important factor.
- Amounts Owed (30%): This is largely measured by your credit utilization ratio—the amount of revolving credit you’re using compared to your total limits.
- Length of Credit History (15%): A longer history of responsible credit management can positively influence your score.
- New Credit (10%): Opening several new accounts in a short period can temporarily lower your score.
- Credit Mix (10%): Having a diverse portfolio of credit accounts (e.g., credit cards, installment loans) demonstrates you can manage different types of debt.
How to Improve Your Credit Score Range
To move into a higher credit score range, focus on these fundamental habits:
- Pay All Bills On Time: Set up automatic payments to avoid missing a due date.
- Lower Your Credit Utilization: Aim to keep your balances on revolving credit accounts below 30% of the credit limit—ideally below 10%.
- Avoid Closing Old Accounts: An older, paid-off credit card boosts the average age of your credit history and keeps your overall credit utilization lower.
- Monitor Your Credit Report: Check your report from all three bureaus (Equifax, Experian, and TransUnion) for free at AnnualCreditReport.com. If you find errors, you have the right to dispute them.
- Apply for New Credit Sparingly: Each application can trigger a hard inquiry, which may cause a minor, temporary dip in your score.
Frequently Asked Questions (FAQs)
Q: Do I need a perfect 850 score to get the best rates?
A: No. Any score in the “Excellent” range (typically 800 and above) is enough to qualify you for the best loan terms and interest rates available.
Q: Does checking my own credit score lower it?
A: No, checking your own score is a “soft inquiry” and has no impact. A “hard inquiry,” which occurs when a lender checks your credit for an application, can cause a small, temporary drop.
Q: Do all lenders use the same scoring model?
A: While FICO is the most widely used, lenders may use different scoring models, including VantageScore or their own proprietary systems. They may also use industry-specific scores (like FICO Auto Score) that weigh certain factors differently. However, the principle remains the same: a higher score indicates lower risk.