You might be surprised to hear this, but as of April 2021, the average FICO score is 716. The average FICO score has continued to rise since it first reached 700 in April 2017.
But that wasn’t the only surprise. Do you believe that 23.3% of consumers actually have a credit score of 800-850? FICO scores are usually between 300 and 850. A score of 800 or higher is considered a special FICO score.
Don’t worry if your score is under 800. The Excellence bar starts before 800, but the number to reach depends on the credit rating used.
The two most commonly used scores are FICO Score 8 and VantageScore 3.0, let’s take a look at both.
What is considered excellent credit?
FICO Score 8 is the most widely used version of all three credit bureaus. According to myFICO.com, how the FICO credit range has evolved:
- Excellence: 800 and above.
- Very good: 740 to 799.
- Good: 670 to 739.
- Fair: 580 to 669.
- Poor: 579 and below.
Looking at the breakdown, you might think you need at least 800 points. To be rated “Outstanding”, do so. But you don’t need an 800 FICO score to get the best rates on loans and credit cards.
According to Informa Research, if you have a score of at least 760, you’re in good shape. You can get a 30-year fixed-rate mortgage for $300,000 at a low rate of 4.919%. With a score of 820, you get the same ratio. You may not be technically outstanding in the eyes of FICO, but who cares? Getting the best price is what matters.
Here are the VantageScore credit ranges, according to Experian, one of the three major credit bureaus:
- Excellent: 781 to 850.
- Good: 661 to 780.
- Fair: 601 to 660.
- Poor: 500 to 600.
- Very poor: 300 to 499.
A FICO score of 750 is considered a very good score. But a VantageScore of 750 is only considered a good score. The weights of these factors are not identical, so they cannot be directly compared to the scores.
What affects your credit score?
Here are five factors considered in your FICO score:
- Payment history: 35%.
- Credit utilization: 30%.
- Length of credit history: 15%.
- Credit mix: 10%.
- New credit: 10%.
As you can see, payment history and credit utilization are very important. Most versions of credit scores also include these two factors in their ratings, but they are weighted differently.
VantageScore does not provide percentages of factors involved in calculating a score. Instead, it focuses on the “influence” of one category.
Here’s how it works:
- Credit usage, balance, and available balance: Very influential.
- Credit portfolio and experience: Very influential.
- Payment History: Moderate Impact.
- New Accounts: Less influential.
- Age of credit history: less impact.
Why Excellent Credit Matters
Excellent credit will help you save money. Remember the example above, when you got a top rate of 4.919% on a $300,000 30-year fixed-rate mortgage with a FICO score of 760? This results in a monthly principal and interest payment of $1,596.
Let’s see what your monthly payment will be if your FICO score is only 630. Now your interest rate is 6.508%, and your monthly payment on the same mortgage is $1,898. Payment difference after one year? You overpaid by $3,624. After 10 years, you paid another $36,240. The difference between below average and high scores is staggering.
In addition to getting cheaper credit, you qualify for the best credit cards and, in some states, lower insurance premiums. In a financial emergency, such as if you’re doing expensive home repairs, good credit is valuable because it can help you get cheaper credit more easily.
Improve your credit rating
Six months of reporting account data are required to generate the FICO score. VantageScore allows you to generate a score if you have at least one month of credit activity in the past 24 months.
You can’t choose the score your lender uses, but you can develop a lending habit that improves your score, regardless of the type or version used. Practice the following habits to improve your credit score.
- Maintain good payment records. Set a realistic budget and pay all your bills on time. I’m talking about every bill, not just your credit card bill. A good payment history is the key to good credit.
- Monitor your credit usage. You have a credit utilization ratio, which is the ratio of the amount of credits you have used to the amount of credits you have available. Keep your credit card balance under 30% — actually 10% if you can — and you’ll see your score improve.
- Stay debt free. Start tracking your spending so you can keep track of your credit card balances. Once you use multiple credit cards, it’s important to have a system in place. If you don’t know where every dollar is going, you’re likely to be in debt.
- Stop obsessing about your score. Just practice the habits listed here and your score will improve. But calm down with the exact numbers. Your credit score will change as new information is reported to the credit bureau. So being patient and using your credit responsibly will improve your score.
Remember, you don’t need perfect credit. Raise your score to at least 760 and you’ll get the best rates.
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