You’ve likely heard about the importance of having good credit.  But what’s a good credit score?  Although there are various scoring models available, a FICO score is the one used by 90% of lenders.  Your score is only three digits long but allows lenders to quickly assess your credit risk.  So, what is a good FICO score?  Keep reading to find out the answer to the big mystery.

FICO score breakdown

FICO scores range between 300-850 (the higher, the better) and fall into one of five categories; exceptional, very good, good, fair and poor.  Here is what each range means along with the level of risk.

800+ – Exceptional

Applicants in this range are the cream of the crop in the borrowing world and boast scores well above the national average.  As a result, they are easily approved and get the best rates when they apply for new credit.  They pose the least amount of risk in terms of making delinquent payments.  In fact, only 1% of people with scores above 800 are likely to miss payments in the future.

740 to 799 – Very good

Experian reports that 18.2% of people have FICO scores between 740 and 799.  They too have scores above the national average and qualify for attractive interest rates. The odds of them having outstanding debt in the future is a measly 2 percent.

670 to 739 – Good

This is the median credit score in the U.S.  While applicants have a strong chance of being approved for new credit, their interest rate won’t be as low as those with higher credit scores.  Borrowers in this range have an 8% chance of becoming delinquent in the future.

580 to 669 – Fair

Applicants with fair credit are known as subprime borrowers because they pose a greater risk of defaulting on a loan.  Overall, there’s a 28 percent chance of them not paying their bills on-time.  Since their score falls below the national average, getting approved for new credit won’t be easy.  If they do manage to get approved, they’ll receive a much higher interest rate.

579 and below – Poor

Out of all applicants, consumers with poor credit scores have the greatest chance of being denied for a loan.  That’s because 61% of borrowers in this range are likely to miss payments in the future.  Getting a credit card is possible but it will be one that requires a security deposit or annual fee.

Factors affecting your score

Your FICO score is comprised of five different components with varying levels of importance.  They are:

  • Payment history – 35%
  • Amounts owed – 30%
  • Length of credit history – 15%
  • Credit mix – 10%
  • New credit – 10%

Payment history

By far, the most important factor in your FICO score is your payment history.  Lenders believe that your past behavior is a good indicator of what you’ll do in the future.  So it’s important to always pay your statement balance by the due date to keep your score in good shape.  An easy way to avoid making late payments is to set up auto-bill pay with your creditors.

Amounts owed

At the end of each billing cycle, your statement balance is reported to each of the credit bureaus and appears on your credit report.  Therefore, owing a large balance sends a red flag to lenders that you may be overextended.  Even if money is no object, stick to spending less than 30 percent of your available credit.

Length of credit history

Keeping your credit cards open and active boosts the average age of your accounts.  The older your accounts, the better your score.

Credit mix

Lenders like to see that you’re good at handling multiple types of credit.  This includes credit cards, store cards, installment loans, finance company accounts and mortgages.  However, that doesn’t mean you need one of each to have a good score.

New credit

myFICO reports that people who open multiple accounts in a short period of time are more likely to go bankrupt.  With that being said, your best bet is to only apply for new credit when you really need it.

How to get your score

Many credit card companies provide free FICO scores to account holders with their monthly statement.  If yours doesn’t, you can always use a site like Discover’s Credit Scorecard to get the information.  It’s free for everyone (card member or not) plus they provide helpful tips for improving your score.