In this article:
It isn't necessary to have a perfect credit score of 850 on the FICO® Score☉ scale of 300 to 850 to qualify for the best terms on credit. In fact, you may not even need a score of 800 or better, a threshold experts consider as good as perfect, to reap the best advantages of a high credit score.
Your best credit score is one high enough to qualify you for the credit you seek—with good terms and a low interest rate—taking into account your current credit usage, your credit history and your past credit habits (good, bad or nonexistent). While it's wise to work toward higher credit scores, how high your score really needs to be will vary based on these and other factors. Here's what you need to know about achieving high credit scores.
What's the Best Credit Score?
The somewhat simplistic definition of a perfect credit score is 850. That's because even though there are dozens, maybe hundreds, of different credit scoring systems and score ranges in use by lenders, the FICO® Score and its chief competitor, VantageScore®, both assign scores on scales of 300 to 850.
The FICO® Score further groups scores in that range into "bands" according to general creditworthiness:
|FICO® Score Ranges|
While an admirable goal, a FICO® Score of 850 isn't essential to gain the top benefits credit scores can provide: Most lenders offer their best interest rates, fees and perks to borrowers with scores of 800 or greater. Because lenders are free to set their own lending standards, some may extend their best lending terms to borrowers with scores in the high 700s.
For many credit applicants, scores in the very good and exceptional bands, while ultimately attainable, may be difficult to achieve immediately for the following reasons:
- The length of your credit history is an influential factor in determining credit scores. Therefore, new credit users—no matter how responsible they are with debt—may need some additional years of experience before their credit scores rise to very good or exceptional levels.
- Even experienced borrowers may have trouble gaining top-tier scores if their credit reports contain recent negative entries. One or more recent delinquencies (payments made more than 30 days past due), high balances on revolving credit accounts or more severe events such as repossession, foreclosure or bankruptcy can pull credit scores down.
Time can bring relief in both situations, through a lengthening credit history or the lessening impact of negative events as they age. That may not be helpful if you need credit now, however.
Fortunately, there are many types of credit offers available to applicants with good credit, and some are even available to borrowers with fair or poor credit, albeit at higher interest rates than borrowers with top-tier credit are charged.
Why a Good Credit Score Is Important
While you may be able to borrow money you need with a credit score that's considered fair or even poor, there are many advantages to building up a credit score that rates as good (670 to 739) or better on the FICO® Score range.
- Lower interest rates on credit cards and loans
- Better borrowing terms
- Lower insurance rates
- Access to better credit card rewards programs
- Greater options for renting houses or apartments
- Lower security deposits on housing and leased equipment such as internet routers, cable boxes and satellite dishes
What Credit Scores Do You Need for Different Kinds of Credit?
Here's an overview of the minimum credit scores you'll need for various forms of consumer credit. Keep in mind that lenders set their own standards, so some may accept scores a little below the ones cited here, while others might require scores higher than these minimums. While it's good to know the minimum required scores, the higher your credit score is when you apply, the better rates and terms you'll receive.
There's no industry-standard credit score requirement for mortgages, but a good ballpark number for conventional mortgages—those issued without the backing of the federal government—is a minimum FICO® Score of 620.
That's the common requirement for fixed-rate conforming mortgages eligible for purchase by Fannie Mae and Freddie Mac, the federally chartered corporations that buy the vast majority of single-family home mortgages from the financial institutions that issue them.
If you meet other qualifications for a mortgage backed by the Federal Housing Administration (an FHA loan), you may be approved with a FICO® Score as low as 500 if you make a down payment of at least 10% of the home's purchase price. A FICO® Score of 580 or better can earn you approval for a down payment of just 3.5% of the purchase price.
Auto loans are available to borrowers with FICO® Scores categorized from poor (579 or lower) to exceptional (800 or greater) on the score range of 300 to 850.
Like issuers of other loan types, some auto lenders insist on credit scores in the upper ranges to avoid potentially risky borrowers. But, perhaps because auto loans use vehicles as collateral and are issued in relatively small amounts, some auto lenders actively pursue borrowers with scores in the fair-to-poor range, understanding that they can charge them higher interest rates and fees as a trade-off for taking on additional risk.
Indeed, auto loan borrowers with poor or fair scores will likely be charged significantly higher interest rates than borrowers with better scores and may be subject to higher down payment requirements and lower loan amounts.
Note that many auto lenders gauge borrower risk using the FICO Auto Score, a specialized version of the FICO® Score, with a range from 250 to 900, specifically designed to predict failure to make car payments. Other car lenders use traditional scoring systems with scores that range from 300 to 850. No matter which scoring system is used, you'll be notified in writing if the credit score used disqualifies you from a loan, or if it leads the lender to charge you more in interest than the lowest rate the lender offers.
There is no universal FICO® Score requirement for unsecured personal loans, but a score classified as good (670 to 739) or better will likely position you to qualify at a favorable interest rate. Because personal loans are typically not backed by collateral, they may have stricter credit score requirements and higher interest rates than you'd expect on a secured loan for a comparable sum (such as a car loan).
You may be able to qualify for a credit card with a FICO® Score as low as 600, which falls squarely in fair territory, but you'll have far more options with a score in the good range.
Cards with rewards and perks are available to borrowers with good credit, but the most generous ones are reserved for borrowers with very good to exceptional scores.
If you can't qualify for a conventional credit card, consider trying a secured credit card, which requires you to put down a deposit. That sum typically serves as your credit limit, and the lender will keep the deposit if you stop paying your bills. But as long as you use the card and pay your bills on time each month, you'll establish a positive payment history that can help build your credit scores.
How to Maintain Good Credit
- Pay your bills on time. The single greatest influence on credit scores is payment history, and there's no single behavior that promotes credit score improvement more than paying your bills on time every month. Just one late or missed payment can pull your scores down significantly. Payment history accounts for 35% of your FICO® Score, the score used by 90% of top lenders.
- Keep credit balances low. Credit usage, particularly as represented by your credit utilization ratio—the percentage of your credit limit you're using on credit cards—accounts for about 30% of your FICO® Score. Utilization that exceeds about 30% can have a bigger negative impact on your scores, while consumers with exceptional scores tend to keep utilization below 10%.
- Cultivate a variety of credit accounts. People with outstanding credit scores typically have a diverse portfolio of credit accounts, including some combination of car loans, credit cards, student loans, mortgages and other credit products. Credit scoring models view a mix of accounts as a sign of good credit management. Credit mix accounts for about 10% of your FICO® Score.
- Take on new credit only as needed. Recently opened credit accounts and credit checks known as hard inquiries that lenders perform when you apply for credit account for 10% of your FICO® Score. Lenders and scoring models see an abundance of new accounts or inquiries as a potential sign of overreliance on credit, which can hurt credit scores.
- Be patient. Your experience as a credit user, as measured by the ages of your accounts, makes up roughly 15% of your FICO® Score. Forming the habits described above and maintaining them over the long haul will benefit your credit scores. All other factors being equal, the longer your credit history, the higher your credit scores.
The Bottom Line
If your credit score allows you access to the type of loan or credit you seek, at an interest rate and borrowing terms you can afford, your score is high enough to meet your needs today. By managing your credit with diligence and patience, you can improve your scores over time, earning access to even better lending terms and options. Checking your FICO® Score for free from Experian can help you track your score improvement and the opportunities that come with it.