What Is a Good Credit Score?

Written By Coach Nick Greuel

Did you know there are over 30 different types of credit score? That’s a lot of scores! The most common ones are the FICO score and the Vantage score, but there are others. FICO even has 28 different versions of its own score.

Vantage Scores use these factors:

  • Payment history: 40%

  • Depth of credit: 21%

  • Credit utilization: 20%

  • Balances: 11%

  • Recent credit: 5%

  • Available credit: 3%

FICO Credit Scores are built on five different factors:

  • Payment history: 35%

  • Amounts owed: 30%

  • Length of credit history: 15%

  • New credit: 10%

  • Credit mix: 10%

 

Increasing your score requires you to take out more credit, that is, go into more debt. Paying at least the minimum payments on all your debt has the biggest impact. Interestingly, paying more than the minimum, or paying off your debt in full, does not benefit your score. Doesn’t that seem like the more financially responsible thing to do though?

Having different types of credit is good for your score. That’s what “Depth of Credit” means. So, credit cards + consumer loans + car loan + mortgage provides diversity. If you pay all those minimum payments on time, the credit bureaus are happy and will reward you with a higher score. It’s almost like they are encouraging you to take out as much debt as possible to get a better score, huh?

New credit helps too. That means getting a new credit card or loan, for example. But new credit also hurts, as odd as that may seem. Because the amount of credit you have available over longer periods of time is what they mean by “length of credit history”. Every time you open a new account, the average amount of time you’ve had debt goes down. In practice, new credit hurts your score a little at first, but the longer you maintain it, the more your score will start to improve. You’ve heard, “You need to spend money to make money”? Well, the debt industry says you have to hurt your credit to build your credit.

Available credit is how much credit you have been approved to use but are not actually using. For example, if you get a credit card with a $10,000 limit, but only charge $50 to it. You have $9,950 of available credit. So the less you charge to your credit card, the better it is for your score. This might be the only factor that doesn’t seem to encourage you to go further into debt. Maybe that’s why Vantage only counts it for 3% of your score.

So how high does a score have to be to be good?

Vantage does it this way:

  • Very Poor: 300-499

  • Poor: 500-600

  • Fair: 601-660

  • Good: 661-780

  • Excellent: 781-850 

FICO classifies scores like this:

  • Poor credit: 300 to 579.

  • Fair credit: 580 to 669.

  • Good credit: 670 to 739.

  • Very good credit: 740 to 799.

  • Excellent credit: 800 to 850.

Banks started using credit scores in the 1950’s. So people weren’t concerned about this stuff in “the good ol’ days”. In the decades since, we have been led to believe that a high credit score is a suitable measure of financial success. This has been especially true since 1995, when the FICO Score was adopted by Freddie Mac for mortgages. However, the credit score fails to capture most of the elements of a financially successful lifestyle. Actually, the credit score only cares about your relationship with debt. Not how regularly you save, not how much money you actually have, not how well you accomplish your financial goals. Any of those would be better indicators of a healthy financial picture. A better metric to gauge financial success is probably your net worth. Add up everything you have (assets) and subtract everything you owe (debts) to determine your net worth.

Another way to measure your financial success is to ask yourself how you feel about money. Does the word bring about positive emotions or negative ones? Are you excited about a future of security and growth, or are you worried about the present and how you’ll pay the bills? A life of financial freedom includes a healthy bank account with adequate emergency savings that gives you a sense of security. Financial freedom includes regularly saving for big goals like buying a car, paying for college, or owning a house. And, financial freedom includes a life free of debt. That means no more monthly payments on outstanding balances. That means no more worrying about debt collectors. And, that means, no more worrying about your credit score.

Chances are, you are already convinced that a good credit score is important. Maybe parents and teachers have been telling you that for years. Credit card companies have been wildly successful in selling us debt over the past several decades. They have led us to believe that debt is necessary. And, if debt is necessary, a good credit score is something to achieve. Of course, the only way to get a credit score and increase it, is by buying the product these companies are selling: debt!

But, what if you said, “No more!” to the lies the credit card companies market to you? What if you could pay cash for the things you want instead of charging them and paying interest? What if you removed the shackles of debt and resolved to live a life of financial freedom from now on? Click below if you want to flip the system on it’s head and stop playing the games the debt industry has created.

Coach Nick Greuel
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