Watch out because a good credit score may actually be bad, depending your source.
What is considered a good credit score? Well like many things in life, the definition of “good” or “bad” will vary depending on who you ask.
But with credit scoring it’s even more complicated…
You see there is a great deal of deception going on in the world of credit scores. Most sources out there do not use FICO scoring. Instead they use imitations and infer they are FICO.
More than 1,000 different scoring models?!
Yep, you read that correctly. According to Experian, by some estimates there are upwards of 1,000 or more different credit scores being used today.
Obviously you can see why this makes it difficult to answer the question “What is a good credit score number?” because first you have to ask “What type of score are you talking about?”
By far the most important type is FICO. They were the original pioneers of scoring and have been around for several decades. When you apply for a credit card or mortgage, there’s a good chance the creditor is basing the decision on your FICO.
If you want to know how good (or bad) your score is, what you really should be doing is basing that decision on your FICO score. Because after all… why care about the 1,000+ other types when only 1 of them is clearly the dominant player?
So why are there different types?
One word… money. There is a lot of money to be made selling scores.
Because FICO owns their formula, it can’t be used by creditors (or websites selling credit scores) unless they pay FICO for that right. And obviously since they are the industry leader, doing so isn’t going to be the cheapest option.
This is why over the years, competing scoring models have been created – some are useful, while others are useless.
How good is my credit score?
If you’re talking about FICO then the range runs from 300 to 850.
For years FICO used to report what the median score was but they stopped doing that a few years ago (citing it is “proprietary” information).
But up until late last decade – when they did publicly release the number – the median was 723. A median means exactly in the middle; half of the scores are higher and half are lower. It’s a more accurate measure than the average credit score.
Most sources say a good credit score range (for FICO) is somewhere between 700 and 759. And sure enough on MyFico.com they list scores within that range as likely being eligible for the same mortgage rate (screenshot pictured to left).
However after the financial fiasco during the latter part of last decade, what many creditors consider to be “good” is higher than the 700 benchmark.
Conclusion? Anything between 700 to 759 is within the good credit score range. However nowadays if you want to be conservative with your definition, go ahead and increase that bottom number by 10 or 20 points – i.e. 720 to 759 = good.
And what’s good for the 1,000 other types?
This, my friend, is where it’s going to get a bit tricky, because the definition of “good” will vary since every score uses different formulas and often different number ranges.
Here’s a rundown on some of the most common types:
This is second most popular but it’s a distant second to FICO. Some estimates peg their marketshare among lenders at only 10%. It was launched in 2006 and its development was a joint effort of Equifax, TransUnion and Experian.
Its scale is quite different, running on a 501 to 990 range and every increment of a 100 equates with a letter grade. Starting at 501 to 600 which is an “F” grade.
A “C” is 701 to 800 and if considered that to be a good grade in school, then I guess you could label any number within that range as being good.
However if you’re like most people, you would at least strive for a “B” right? For that you will need to land between 801 to 900.
Please note that lenders use the numbers, not the grades. The letters are just meant to be a guide for consumers so they can better understand their creditworthiness.
Obviously you can see why it would be bad to confuse a VantageScore with a FICO score since their scales are so different. A credit score of 800 on FICO would be excellent but for a VantageScore, that wouldn’t be too great.
A very distant third place goes to the Experian PlusScore, which has a range of 330 to 830. This score is not used by lenders whatsoever.
It’s used by many credit score offer websites and if you read the fine print, they say it’s something for “educational purposes” only.
Translation? Other than using it for a ballpark estimate of your FICO, it’s pretty much useless.
Experian does publicly say the median is 724. Even though that’s quite similar to FICO’s purported 723 median, that’s about where the similarities end. The score distribution above and below the median is quite different. You can compare Experian’s PLUS Score and FICO here.
So what’s good and what’s not? That’s tough say, because from my experience (both personally and feedback I have heard) the results are often quite different than FICO.
But if I had to peg a number, I think it’s safe to say anything within the 700 to 740 range is good.
When you check your score online, there are at least a dozen others I can think of which are actively being used.
It’s impossible to determine the worthiness of some types because they reveal almost no information about them. For example, FreeScore.com uses their own formula and to the best of my knowledge, they haven’t released much information about it.
There are websites like Credit Karma, Credit Sesame, and Quizzle which offer free scores that also use proprietary models. I recommend these if you want to estimate what your FICO would be. And unlike the sites which try and sell you scores, these 3 are upfront and honest about the type of score you are getting.
Whatever you do, just don’t pay money for a non-FICO score. If you’re going to pay money, then my belief is it should be a true FICO.
How I got a GREAT score super quick
As you see from the chart above, less than 13% of Americans have a FICO of 800 and above. You may be surprised to hear I was able to hit that number while I was still in my mid 20′s. And before that during my early 20′s, my FICO was still in the healthy mid 700′s.
I accomplished that without the help of loans. My strategy has been this:
- Have at least 8 open credit card accounts
No, I’m not advising you use them to carry debt. In fact I encourage the opposite; pay off your cards in full each month! The key here is that simply by having a large number of accounts, your credit history becomes more robust.
- Make sure each account gets used at least once per year
Obviously using them all at once would be a nightmare. But it’s quite easy to keep track of 1-3 cards at a time. What I would recommend is every time the season changes, change which cards you use. That way all of them will be active accounts.
- Never cancel a card
As long as a given card isn’t charging an annual fee, there’s no reason to cancel it. Keep it open because as it ages, that will help boost your average account age.
If you need more credit card accounts, as you can probably guess I would strongly recommend that you stick with those that have no annual fee. For 2013 here are 3 of my favorite: