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Good credit scores are made, not born, so after you establish your first score it'll take some time to reach a level that will qualify you for the best borrowing terms. Exactly how long depends on the types of credit you use and how capably you manage your accounts. Here's how it all works.
What Is a Good Credit Score?
Every lender sets its own criteria for lending decisions, including the minimum credit scores it requires for the loans or credit cards it offers. The main consumer credit scoring models, FICO® Score☉ and VantageScore®, both generate scores that range from 300 to 850, with higher scores indicating greater creditworthiness. Both companies also provide general guidelines on what makes a "good" credit score.
A FICO® Score of 670 to 739 is considered good. Scores falling elsewhere along the range from 300 to 850 are characterized as follows:
- 800 to 850: Exceptional
- 740 to 799: Very good
- 580 to 669: Fair
- 300 to 579: Poor
A VantageScore of 661 to 780 is considered good, and scores elsewhere in the 300 to 850 range are described as follows:
- 781 to 850: Excellent
- 601 to 660: Fair
- 500 to 600: Poor
- 300 to 499: Very poor
As you can see, because the ranges of FICO® Scores and VantageScores are different, it's important to understand which score you're looking at when determining whether your credit score is considered "good."
What Determines Your Credit Scores?
The FICO® Score and VantageScore systems calculate scores differently, but both provide general descriptions of the factors they use to determine your scores, and the relative importance of those factors.
FICO® Score Factors
The FICO® Score system places greatest emphasis on these factors when determining your scores:
- Payment history: The most important contributor to a good FICO® Score is making steady, on-time debt payments. Missing even one payment can have a negative impact on your FICO® Score. Payment history makes up approximately 35% of your FICO® Score.
- Amounts owed: The amount of debt you owe, and specifically your credit utilization ratio―how much credit you've used on revolving accounts compared with your total available credit―is the second largest contributor to your FICO® Score. Using more than 30% of your available credit can cause your credit scores to decline, but it's best to keep your credit utilization ratio as low as possible. Credit utilization accounts for 30% of your FICO® Score.
- Length of credit history: Reflecting the fact that consumers typically become more creditworthy as they gain experience handling debt, the amount of time since you first became a user of credit, as well as the average age of your accounts, accounts for 15% of your FICO® Score.
- Credit mix: Statistically speaking, the ability to handle a diverse combination of credit accounts, such as car loans, credit cards, student loans and mortgages, can show reliable debt management. Credit mix accounts for 10% of your FICO® Score.
- New credit: Any time you take on new debt, you're seen as at greater risk of being able to repay your existing obligations. As such, recently opened credit accounts and recent hard inquiries related to credit applications account for 10% of your FICO® Score.
Introduced in 2017, the most recent version of VantageScore scoring software, VantageScore 4.0, evaluates the following factors when determining your credit score:
- Payment history: Regular, timely debt payments are the most important contributor to a VantageScore 4.0 score, accounting for about 41% of the score.
- Depth of credit: A measurement that considers the age and variety of your credit accounts, depth of credit is responsible for about 20% of your VantageScore.
- Credit utilization: The percentage of your borrowing limits on credit cards and other revolving accounts represented by your outstanding balances accounts for about 20% of your VantageScore. As with the FICO® Score, balances that exceed about 30% of your available credit limit can hurt your scores.
- Recent credit: The combination of recently opened accounts and recent hard inquiries related to credit applications are responsible for about 11% of your VantageScore 4.0 score.
- Balances: Your total debt, including balances on credit cards and loans, accounts for about 6% of your VantageScore.
- Available credit: The amount of unused credit you have available on revolving accounts such as credit cards makes up about 2% of your VantageScore 4.0 score.
How Long Does It Take to Build Good Credit?
There are two parts to building good credit: initially establishing a credit score and earning a good credit score. While it only takes several months to establish a credit score, building a good credit score can take years.
Establishing a Credit Score
Before you can build a good credit score, you must have a score to begin with. FICO and VantageScore have different minimum criteria for generating scores. If you don't meet these criteria, anyone seeking your credit score (including you yourself) will be notified that there's insufficient information to provide a score.
Minimum requirements for FICO® Scores, which are used by 90% of top lenders, are:
- You must have a credit report at whichever of the three national credit bureaus (Experian, TransUnion or Equifax) the inquiring party uses to get its scores. Each bureau opens a credit report after you open your first loan or credit card account.
- Your credit report must reflect at least six months of credit history.
- There must be at least one "trade" (credit transaction or payment) recorded on the relevant credit report within the preceding six months. If you go six months without any credit usage or payments, it's possible to become "stale" to the FICO® Score and not be able to be scored even if you've had a credit report for decades.
Minimum criteria for a VantageScore are:
- You must have a credit report at the credit bureau the inquiring party uses to provide its scores.
- Your credit report must reflect at least one open loan or credit card account.
Building Up Good Credit Scores
The credit scores you receive when you first establish your credit report will not be poor—low-end scores are typically reserved for individuals who've chalked up significant credit missteps, such as defaulting on a loan or filing personal bankruptcy. Your initial score won't be excellent either; it will take time to build up to that.
How long it will take you to achieve good (or excellent) credit will depend on the factors listed above—payment history most of all, but also the types of credit you obtain, your ability to avoid high balances and your skill at handling multiple accounts of different types.
Your initial score is largely determined by the type and amount of credit you get with your first open account. Taking that score from middling to excellent will take months, if not years, of steady, prudent credit management.
Although age of accounts makes a relatively small contribution to both the FICO® Score and VantageScore, the role of patience in building credit scores shouldn't be overlooked. Assuming you avoid missteps in managing your credit, your scores will tend to improve over time, so staying the course will pay off eventually.
Why It's Important to Have a Good Credit Score
Credit scores attempt to predict the likelihood you'll repay your debts. Along with your income and debt levels, lenders use scores to evaluate how risky it will be to issue you credit or a loan. Scores can be used in deciding whether you qualify for a loan at all, and also how high the fees and interest rate the lender will charge on money you borrow.
Generally speaking, applicants with excellent credit are offered the lowest available interest rates and fees. Borrowers deemed riskier because of lower scores may be charged higher rates and fees, and those with the lowest scores may be denied credit altogether.
Besides lenders, the law permits certain other parties to check your credit when deciding whether to do business with you. These include:
- Landlords, who may use your credit history when deciding how large a security deposit to require on a home or apartment rental, or even whether to approve your application at all.
- Utilities and cellphone providers, who use your credit report when deciding whether to charge security deposits on equipment they lease you, and whether they'll offer you service.
How to Improve Your Credit
Proven steps to improve your credit scores include:
- Establish a credit report. If you're starting from scratch with no credit file at all, Experian Go™ can help you generate an Experian credit report, and the Experian Boost®ø feature can let you share cellphone or utility payment history to build up credit on your Experian credit report.
- Build your credit file. Opening an account that will be reported to all three major credit bureaus is a good way to begin a solid payment history. Since it can be difficult to qualify for conventional loans or credit cards without a history of debt management, consider special products such as credit-builder loans or secured credit cards designed to jump-start new credit (or rebuild damaged credit). Getting added as an authorized user on someone else's credit card could also help, as long as both of you use the card prudently.
- Pay your bills on time, without fail. Payment history gets more consideration than any other factor in deciding your credit scores, and a long record of timely payments is a key to excellent scores.
- Catch up on any past-due accounts. If you're behind on any bills, do all you can to bring them current, before they are considered in default or assigned to collections. If you're having trouble with debt, a credit counselor could be a good resource for advice and, if necessary, as an advocate to help negotiate with your creditors.
- Pay down revolving account balances. High balances on revolving credit accounts can lead to a high credit utilization rate and hurt your credit scores.
- Apply for new credit only as needed. New loans and credit card accounts can help build credit, but trying to build up too many accounts in a short time can backfire. Each application can trigger a hard inquiry, which temporarily lowers your scores a small amount. Too many inquiries in succession can add up, and the cumulative effect on your scores could reduce your odds of credit approval.
The Bottom Line
The trek from newly established credit to a high credit score is a slow, steady climb. You may be able to give yourself a head start with tools like Experian Go and Experian Boost, and you can mark your progress by checking your free credit score from Experian, but there aren't many shortcuts along the way. Errors like late payments could slow your progress significantly, but in time you can recover from them and even make up for much more serious mistakes. The keys to building your credit score are prudence, patience and perseverance. Good luck on your journey.