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When applying for a credit card, car loan, mortgage or other forms of credit, your FICO credit score plays a key role in determining whether you will be approved or denied, as well as the interest rate you’re given. In fact, 90% of top lenders use FICO Scores to make billions of credit-related decisions each year.
FICO Scores can range from 300 to 850 – and the higher your score is, the better your chances are of being approved for credit. That’s why it’s important to have a credit rating of “good” (which ranges from 670 to 739) or better.
We break down the FICO Score, including what is considered a good credit score, how to check your score and how you can improve it.
- What is a FICO Score?
- What is a good credit score?
- How to check your credit score
- How to improve your FICO Score
- Is “good credit” good enough?
What is a FICO Score?
Created by the Fair Isaac Corporation, a FICO Score is a three-digit number that’s used by lenders to help predict how likely you are to repay debts. Your FICO Score is calculated using the following factors that’s reported to the credit bureaus from previous or existing credit accounts:
- Payment history (35%): Whether you pay on time.
- Amounts owed (30%): How much credit you use compared to your total credit limit across all accounts.
- Length of credit history (15%): Average length of time your credit accounts have been open.
- New credit (10%): How often you open new accounts and have credit inquiries.
- Credit mix (10%): The variety of credit products you have (credit cards, loans, mortgages, etc.).
What is a good credit score?
FICO credit scores range from 300 to 850, and the credit ratings of poor, fair, good, very good and exceptional vary among the three major credit bureaus — Experian, TransUnion and Equifax.
For this guide, we use the FICO Score ranges provided by Experian, which considers 670 to 739 to be a good credit score.
According to Discover, the “good credit” category generally includes dependable borrowers who may have been slightly late on a payment in the past or who may not have a long credit history. Experian states that only 8% of applicants in this score range will likely become seriously delinquent in the future.
How to check your FICO Score
You can check your credit score in a variety of ways without generating a hard inquiry, which won’t negatively affect it.
- You can request a free copy of your FICO Score every 30 days through Experian.
- You can also access your FICO Score for free through Discover Credit Scorecard – even if you aren’t a Discover cardholder – or you can sign up for a free credit score through My LendingTree.
Additionally, the Fair Credit Reporting Act (FCRA) requires each of the three major credit bureaus to provide individuals with one free credit report each year through AnnualCreditReport.com, as well as any time that a company takes adverse action against you, such as rejecting you for a credit card or loan.
How to improve your FICO Score
If you want to improve your FICO Score to increase your chances of being approved for credit cards or loans with lower interest rates, you can implement the following steps:
Pay your bills on time and in full each month. Since payment history is the most important factor of your credit score, you should always pay your bills on time each month. It’s also a good habit to pay in full so that you avoid carrying a balance from month to month and incurring interest charges.
Maintain a low credit utilization ratio. It is generally recommended that you keep your credit utilization ratio – which is the amount of credit you use divided by the total amount of available credit you have – below 30%. For example, if you have a credit card limit of $5,000, you should keep your card balance under $1,500.
Minimize the amount of new accounts you open. Each time you apply for a major loan, such as a new credit card, car loan or mortgage, a hard inquiry appears on your credit – which lowers your credit score by a few points each time they occur and stays on your credit report for two years.
If you have too many hard inquiries in a short period of time, it may signal to lenders that you are a high-risk consumer.
For those reasons, it’s best to only apply for credit when it’s truly needed.
Is ‘good credit’ good enough?
Although “good credit” isn’t the best credit rating available, it’s still good enough to get you approved for a variety of loans and credit card offers with decent interest rates. For example, the Discover it® Cash Back, which is marketed to applicants with good credit, offers an intro APR of 0% for 14 months on purchases. After that, a regular APR of 11.99% - 22.99% variable applies.
But keep in mind that there’s always room for improvement. By checking your FICO Score on a regular basis and following the steps above, such as keeping your credit utilization ratio low, you may be on your way to raising your credit score from good to excellent before you know it.