What is a good credit score and why does it matter?

Your credit score is one of the most important numbers when it comes to managing your financial life.

Whether you’re looking to get a loan, a credit card, or even rent an apartment, your credit score plays a major role in determining how easy it will be to get approved.

But what exactly is a “good” credit score, and why does it matter so much? Let’s break it down.

What is a Credit Score?

A credit score is a three-digit number that reflects your creditworthiness. It’s a quick snapshot of how well you’ve managed your debts in the past and how likely you are to repay borrowed money in the future.

Lenders, landlords, and even employers sometimes use this number to make decisions about whether to trust you with credit, a lease, or even a job.

The most common credit score models are FICO and VantageScore, both of which range from 300 to 850. The higher your score, the better your chances of getting approved for credit with favorable terms.

What is Considered a Good Credit Score?

• Excellent Credit: 800-850
  • If your credit score falls in this range, you have excellent credit. People with scores this high are likely to be approved for the best credit cards, loans with low interest rates, and other financial perks.
• Very Good Credit: 740-799
  • Scores in this range are still very favorable. You’ll likely be approved for credit with competitive rates and terms.
• Good Credit: 670-739
  • A score between 670 and 739 is generally considered good. Lenders typically view this score range as acceptable, and you’ll likely be approved for most credit cards and loans, though the interest rates may not be as low as for those with higher scores.
• Fair Credit: 580-669
  • If your score falls in this range, you may still be approved for credit, but you could face higher interest rates and fees. Lenders view this as a higher-risk score range.
• Poor Credit: 300-579
  • A score below 580 is considered poor, and it will be difficult to qualify for most types of credit. If you do get approved, expect to pay very high interest rates.

Why Does Your Credit Score Matter?

Your credit score affects many aspects of your financial life, including:

1. Loan Approvals
   • Lenders use your credit score to determine if they’ll approve you for a loan. A higher score makes you more likely to be approved, while a lower score can lead to rejection or the need for a cosigner.
2. Interest Rates
   • Your credit score doesn’t just determine whether you’ll be approved for credit—it also affects the interest rate you’ll pay. With a higher score, you’ll qualify for lower interest rates, which can save you thousands of dollars over the life of a loan or credit card.
3. Credit Limits
   • A good credit score can also help you get approved for higher credit limits. This is especially important for those who rely on credit cards for larger purchases or to manage cash flow.
4. Insurance Premiums
   • In some cases, your credit score can even affect the premiums you pay for insurance, especially auto or homeowner’s insurance. Insurers may use your credit score to assess your risk and determine your rates.
5. Renting an Apartment
   • Landlords often check your credit score when deciding whether to rent you an apartment. A good credit score can help you secure a lease with better terms, while a lower score might make it more difficult or require a higher security deposit.
6. Job Applications
   • Some employers check the credit reports of potential employees, particularly for jobs in financial services or positions that involve handling money. While they don’t see your credit score, a poor credit history can impact your chances of getting the job.

How to Improve Your Credit Score

If your credit score isn’t where you want it to be, don’t worry—there are steps you can take to improve it over time:

1. Pay Bills on Time
   • Payment history is the largest factor affecting your credit score. Paying your bills on time is crucial to maintaining or improving your score. Set up reminders or automatic payments to ensure you never miss a due date.
2. Keep Credit Utilization Low
   • Your credit utilization ratio—how much of your available credit you’re using—should ideally stay below 30%. For example, if your credit card limit is $1,000, try to keep your balance below $300. The lower your utilization, the better it is for your score.
3. Avoid Opening Too Many Accounts at Once
   • Each time you apply for credit, a hard inquiry is made on your credit report, which can slightly lower your score. Avoid opening multiple accounts within a short period.
4. Maintain a Mix of Credit Types
   • Lenders like to see that you can responsibly manage different types of credit, such as credit cards, auto loans, and mortgages. However, don’t open accounts you don’t need just to diversify.
5. Check Your Credit Report Regularly
   • Mistakes on your credit report can drag down your score, so it’s important to check your credit report regularly and dispute any errors. You’re entitled to one free credit report annually from each of the three major credit bureaus—Experian, Equifax, and TransUnion.

How Long Does it Take to Build a Good Credit Score?

Building or improving your credit score doesn’t happen overnight, but with consistent effort, you can see progress within a few months.

For example, making on-time payments and reducing your credit card balances can have a positive impact on your score relatively quickly.

However, building a solid credit history takes time—usually several years of responsible credit use.

A good credit score generally falls between 670 and 739, and maintaining a score in this range opens up many financial opportunities.

From getting approved for loans to qualifying for the best interest rates, a good credit score is essential for financial health.

By understanding how your score is calculated and taking steps to improve it, you can boost your score and enjoy the benefits of better financial options.