Q: I recently checked my 3 credit scores and their average was 700 (702 to be exact). Is 700 still a good credit score or not?
A: There is a TON of misinformation out there about being in this neighborhood. It is definitely within the “good” score range. Before “The Great Recession” a 700 would be enough to get you approved for almost every credit card. However since then, banks have gotten much more strict with granting credit. So while your credit score may have been considered good in the past, nowadays you may need the equivalent of a 730 to 750 just to do what was previously possible with a 700 credit score.
700 vs. the average score?
But is 700 good compared to average? Yes. I have seen several news stories lately that cite the average credit score in the country as being around 670. However during prosperous times the national average is closer to 680 or higher. But a 700 may be considered below-average in some parts of the country. For example, residents in many areas of the Midwest are known to have above-average scores when compared to the rest of the country.
Not all credit scores of 700 mean the same thing!
When people say “credit score” they are typically referring to a FICO score, which is by far the most widely used scoring system in America. It was developed by Fair Isaac Corporation in 1956, but has evolved over the years. It’s exact formula is a proprietary secret. The FICO score range runs from 300 to 850.
FICO essentially has a monopoly on the industry, so back in 2006 the three major credit bureaus (Experian, TransUnion, and Equifax) came out with VantageScore to compete. It runs on a 501 to 990 scale. So far is has yet to gain much traction in the industry. But is 700 good on the VantageScore scale? Nope! It’s only a “D” (they give letter grades for different ranges).
What can you do to improve your score?
Well we could write a whole textbook on the subject, but here are three easy tips to follow…
- Have and use multiple lines of credit - If you seldom use credit cards and loans, your credit score isn’t going to be that good. Your credit score takes into account the types of accounts you have, how long you’ve had them, and your payment histories on them. It’s good to have an eclectic mix of different types of credit… installment loans (car loans, mortgage loans, student loans) and revolving lines of credit (credit cards).
- Keep your credit card balances low – A small component is based on what percentage of credit you use on your revolving credit accounts (credit cards). No one knows the magic number for sure since the FICO formula is secret, but the consensus among most personal finance experts is you should never use more than 25% to 30% of your credit limit on any credit card at any time.
- Manage all credit responsibly – Much of this is common sense… always pay your bills on time and of course never let any debt go to collections. Some people think that in order to get a good credit score, you need to carry balances on your cards… that is absolutely false! What is reported to the credit bureaus is the amount on your monthly statements (the amount due, before you pay it). So even if you pay in full all the time, that spending will still be showing up on your credit reports.
How I got to the mid-700′s by my 21st birthday
I never had loans of any kind, but I was still able to work my way up to a FICO score in the 700′s (761 to be exact) by my 21st birthday.
How did I do that? It was simple… I had a bunch of credit cards. I didn’t have balances on them either. Instead I just kept them active by rotating which cards I used every few months. For example, I might use 2 cards this quarter, 2 different cards next quarter, and so on.
By having around 7 active card accounts, my credit score increased rapidly.
Do you have enough cards yourself? If you could use a new one, here’s my favorite sponsored recommendation for 2013: