Having a good credit score is something many people strive for throughout their lives. Good credit opens the door for better interest rates, more credit card options and a higher chance of loan approvals. Your credit score exemplifies your creditworthiness and it helps lenders assess risk. A high credit score tells a lender that a borrower is more likely to repay a debt. If you tend to have a low credit score, lenders will see you as a risk.

While there are a variety of credit scoring systems out there and your score can vary between each, the main players are FICO and VantageScore. VantageScore and FICO scores range from 300 to 850 (older VantageScore models used a different range). The higher your credit score, the better it is.

Let’s take a look at all that goes into a good credit score and what it takes to get there.

What is a good FICO score?

FICO defines a good credit score as one that falls between 670 and 739, whereas anything above 800 is considered exceptional. FICO scores between 580 and 669 are considered fair and those between 740 and 799 are very good. A poor FICO credit score is anything below 579.

What is a good VantageScore?

VantageScore 3.0 and 4.0 (the two newest VantageScore credit scoring models) range from 300 to 850, much like FICO. This method of scoring defines 661 to 780 as a good credit score and 781 to 850 as an excellent credit score. Scores that fall between the 601 and 660 range are considered fair and 500 to 600 are considered poor. Any score that falls below 499 is ruled as a very poor credit score.

What affects your credit score?

Your credit score is calculated based on a variety of factors. There are different types of credit scores and different ranges, so while the ranges presented here are based on the standards of the credit reporting agencies, credit issuers may have more specific score requirements within a range to meet their approval standards.

Your FICO score is determined by a combination of five credit factors. These factors include amounts owed, credit mix, new credit, length of credit history and payment history. FICO assigns a percentage to each of these factors to determine how much weight they carry in your credit score calculation, including the following:

  • Payment history: 35 percent
  • Amounts owed: 30 percent
  • Length of credit history: 15 percent
  • New credit: 10 percent
  • Credit mix: 10 percent

VantageScore calculates your credit score using similar factors as FICO, though VantageScore weights factors differently. Payment history is still the most influential factor for VantageScore. However, your credit mix and credit history carry more weight in the VantageScore rankings. Instead of exact percentages, VantageScore offers a hierarchy of its scoring factors:

  • Payment history: Extremely influential
  • Credit mix and age: Highly influential
  • Amount of credit used: Highly influential
  • Balances and debt: Moderately influential
  • New accounts and inquiries: Less influential
  • Available credit: Less influential

Importance of having good credit

Having good credit can provide a lot of benefits for your financial future.

For starters, good credit can help you access more credit card options. And when your score moves into the excellent range, even more card possibilities are available. In fact, the majority of today’s best rewards cards require good to exceptional credit.

Another perk of having good credit is access to lower interest rates. Most credit cards have variable interest rates, which may range anywhere from 13 percent to 26 percent. You won’t find out your assigned interest rate until you are approved, but your credit score is one of the factors used to determine how high it will be.

Additionally, your credit score can impact whether or not you get approved for a loan, such as a home mortgage or car loan, and it can impact the interest rate you will face when you take out such a loan. But it doesn’t stop there. Credit scores are just as important when it comes to non-lending decisions. When you apply for a new apartment, a landlord will run a credit check to decide whether or not they want to bring you on as a tenant. Landlords want to know if you are someone who pays their bills on time, and what better way to decipher this than by reviewing someone’s credit score.

How to improve your credit score

Improving your credit score begins with knowing what your credit score is. Start by requesting a credit report at AnnualCreditReport.com. You have the right to a free credit report once a year from each of the three credit bureaus, and you can find out your credit score on your credit report or from a reputable credit reporting site. Here are a few other steps you can take in order to improve your credit score:

  • Pay your bills on time. Payment history is the most important factor that makes up both your FICO and VantageScore, so you should aim to never pay bills late. You can improve your score by always paying your bills on time and in full each month. When you miss a payment, it can linger on your credit report for up to seven years.
  • Keep your card balances low. Payment history and credit utilization are some of the most important factors when determining your credit score under any model. Experts suggest keeping your credit utilization at 30 percent or below. However, keep in mind consumers with excellent credit scores tend to have a credit utilization rate in the single digits.
  • Try to avoid closing old credit accounts. Keep your accounts open and let them grow with you. Old accounts help add length to your credit history, so keep old accounts alive and in good standing. Closing an account cuts the amount of available credit available to you, which drives up your utilization and ultimately dings your score.
  • Make sure your accounts are being reported to the credit bureaus. If you only have a few credit accounts, make sure those are being counted toward your overall credit score. For example, if you are an authorized user on someone else’s credit card, make sure you’re actually benefiting from being on the account. Alternatively, a history of on-time rent and utility payments can really boost your credit score without much hassle. You may need to use an alternative reporting service, such as Experian Boost, in order to add these accounts to your credit history.
  • Limit credit inquiries. When you apply for new lines of credit, a hard inquiry is applied to your credit report. While this only dings your credit score a tad, you don’t want to apply for a ton of new credit cards all at once. Do thorough research when you are on the market for a new credit card and be sure to only apply for the one that will best suit your financial needs.

The bottom line

Improving your credit score is all about building good credit habits and maintaining those habits over time. Keep in mind that it takes time to build a strong credit score. If you are recovering from a few financial setbacks or simply looking to improve your credit score by a few points, paying your bills on time, maintaining a low credit utilization and limiting new credit inquiries will put you on the right track towards the credit score of your dreams. Or perhaps, the credit score of a lenders’ dreams.