What Is a Good Credit Score Anyway?

Good Credit Score Wouldn’t it be great if lenders used common sense instead of credit scores to determine your creditworthiness? The lender could simply say, “Here’s someone who has a good income, no debt and pays 99 percent of her bills on time — let’s give her a loan.” Instead, they rely heavily on credit scores, leaving consumers one financial mishap away from years of borrowing struggles.

Regardless, credit scores are an important financial reality in the modern world. Most home buyers need a mortgage and plenty of new car buyers require an auto loan; college students need to borrow money to get through school, and the list goes on.

With this in mind, you’ll want to know what a good credit score is so you can gauge your chances of securing a loan with favorable terms, if you can get one at all. So what is a good credit score, anyway?

Credit Score Ranges

FICO credit scores, which are the mostly widely used at present, range from 300 (worst credit score) to 850 (best credit score). As you might expect, your chances of securing a loan at a favorable rate (or qualifying for a loan at all) increase with a higher credit score.

Estimates vary, but the general consensus is that any score in the high 600s to low 700s is a “good” credit score. Scores in the mid-700 range are “very good” and anything above that is “excellent.”

Supporting the consensus, at least to an extent, credit scoring giant Experian believes, “A score above 700 usually suggests good credit management.” So, for the sake of simplicity, let’s say anything above 680 is good, as this is a figure commonly cited by credit experts. Why is this? One explanation is that 60 percent of credit scores fall between 650 and 799. With that in mind, those at the lower end of this range — or beneath it — might be seen as a credit risk while those above 680 are considered similar to their peers, making them good by comparison.

That said, some consider scores in the low-600s to be good, so you might still qualify for a decent loan if you fall within that range. Below that, though, you’ll find borrowing to be very difficult — and expensive.

Related: 7 Ways to Boost Your Credit Score This Month

Limitations of Credit Scoring

Critics often cite that credit scores do not accurately assess a person’s financial risk. In fact, according to ratings agency Fitch, the credit score gap between those who paid home loans on time and those who stopped paying was a mere 10 points in 2006.

To illustrate, financial guru Dave Ramsey has repeatedly stated his credit score is a whopping zero. Basically, he doesn’t borrow money, so his credit score has simply gone away. Meanwhile, according to The Richest, his net worth is $55 million. In other words, if he tried to obtain a loan to purchase a $10,000 car, he’d be turned down, even though he has enough wealth to purchase 5,500 such vehicles out of pocket.

And let’s not forget Warren Buffett who, according to Forbes, has a net worth of $74 billion. In 2008, Fortune magazine reported that his FICO score was 718 — not much higher than the average FICO score at the time of 689, according to MyFICO.com. So, his ability to repay a mortgage loan would be seen as “good,”  not “excellent,” even though he could purchase a few hundred thousand homes without financing.

Basically, if you have a low credit score, it doesn’t necessarily mean you are incapable of paying a loan responsibly. Sadly, though, it will still hinder your ability to borrow.

Like it or not, your credit score is key to securing loans to pursue your financial dreams. So, even with the mentioned limitations to credit scoring, the reality is you’ll face significant hurdles if you attempt to borrow with a low credit score.

While FICO scores range from 300 to 850, 680 or above should be your goal. A majority of borrowers have around or above this number, meaning lenders will favor them over you if you fall below it.

Photo credit: Andy Schultz

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  • A. Samuel Mathew

    For some people, the excellent credit score can be a trap. I had great credit score and the credit card companies bugged me and I was motivated to get credit cards, and by nature a shopaholic, did the mistake and messed up greatly. Better avoid taking calls from the smooth talking credit offers, which can turn as an eternal economic trap.

    • debauche

      Samuel – Do NOT carry a month-to-month balance. Buy only what you can pay for when the statement comes and make that payment immediately upon that arrival. My score is 817… I’m dinged because I own my home and do not make payments for cars or department store purchases.

  • Dy Bennett

    What is wrong with this credit business is if a person has 800 plus rating for 50 yrs and thru no fault of their own, lets say a divorce, they have a mess for awhile, it doesnt seem right that the situation or your background doesnt count and lowers your rating, even if you get them paid but pay late for awhile….

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