What’s the Difference Between Good and Excellent Credit?

FT Contributor  | 

According to Experian, approximately one in five Americans has an “excellent” or “exceptional” credit score, while 67% of adults in the U.S. have at least a good credit score. The most accepted credit score equation comes from the Fair Isaac Corporation (FICO). A perfect credit score is 850 on the FICO scale, and you need a score of at least 800 to be in the “excellent” range.

Twenty-five percent of Americans have a “very good” credit score, which is between 740 and 799 on the FICO scale. Those who fall below this range still have a “good” credit score if their rating is above 670.

While most lenders will consider loan, mortgage, or credit card applicants from these tiers, they prefer people whose scores are top bracket. It is impossible to get a rating higher than “excellent” on the FICO scale.  

Good vs. Excellent Credit

When it comes to obtaining a loan or a credit card, you will be able to do so if your score falls somewhere in the good, very good, or excellent ranges. However, the best loan terms, the most generous rewards credit cards, and other offers are for those with excellent credit.

Here is a closer look at what lenders see when they look at your FICO credit score.

  • 800 to 850 is an “excellent” FICO credit score. People in this range qualify for the best terms when borrowing money. You need to manage your credit exceptionally well to earn a high score, so lenders see little or no risk in lending money or extending credit to people in this tier.
  • 740 to 799 is a “very good” FICO credit score. People in this range can get better-than-average terms when obtaining loans or credit cards. They will not qualify for the best terms, but lenders consider them very low-risk customers, so they will get low interest rates and a chance to earn credit card rewards.
  • 670 to 739 is a “good” FICO credit score. A small percentage of people in this bracket will fail to pay back their loans in the future. Therefore, they will qualify for average or above-average terms on loans and credit cards. However, they cannot always qualify for the same terms as people in the two higher tiers.
  • Those who fall below 670 are in the fair and poor ranges. Lenders consider these people subprime borrowers, and it may be difficult for them to get loans.

VantageScore is an alternative to FICO credit score. Its tiers are slightly different.

  • An “excellent” VantageScore is 781 to 850. Like those with an excellent FICO score, these people qualify for the best terms.
  • A “good” VantageScore is 661 to 780. People who score in this range get average rates and terms on their loans.

Understanding Excellent Credit

Excellent credit can have different meanings. In addition to FICO scores, some lenders also look at an alternative rating called the VantageScore. VantageScore is from a collaboration between the three main credit bureaus, Equifax, TransUnion, and Experian. Both scores top out at 850, and both use similar calculation methods, but a few crucial differences give slightly different results.

You can check your credit score by getting a free report once per year from the three major credit bureaus at AnnualCreditReport.com.  

FICO Score

You need a FICO score of 800 to 850 to be in the excellent range. You need at least six months of credit history to get a FICO score, so people who are just getting started will have to wait a while to build their history and rise into the excellent range.

VantageScore

VantageScore has a slightly wider range. It tops out at 850, but you only need to score 781 or higher to be in the excellent range. Unlike FICO, you only need one month of credit history to get a VantageScore. This score could be an advantage to people who are just starting out and want to reach the excellent range quickly.

Benefits of an Excellent Credit Score

An excellent credit score can qualify you for the best possible terms from lenders and credit card companies. While you do not need an excellent credit score from VantageScore or FICO to get a loan or card with favorable terms, you will not qualify for the best possible terms.

  • When applying for loans, an excellent credit score is a significant advantage. You are most likely to get approved for a loan, and you may be able to get a lower-than-average interest rate.
  • When applying for credit cards, you can get the best terms and conditions with an excellent credit score. Cards with the most generous benefits and rewards are often available to people with an excellent credit score. The perks could include the chance to earn cashback rewards or airline miles.
  • When applying for loans, you can get a lower interest rate. In general, a higher interest rate is for people who lenders think present a higher risk. Because you need to manage your debts well to get an excellent credit score, lenders typically consider applicants in the excellent range as extremely low risk. They do not see the need to mitigate the risk by charging a higher interest rate.
  • You do not need to worry about credit card approval. People with lower credit scores have to check to see if they qualify for a specific card before applying. However, those with excellent credit can be sure they will qualify for virtually every card because there is no higher score.

How to Get an Excellent Credit Score

Getting an excellent credit score involves addressing the different areas that go into calculating your credit score. While the calculations for FICO and VantageScore are slightly different, the variables are the same, so the steps to building an excellent credit score are similar for both rating systems.

You can develop good financial habits and credit management skills that can lead to a higher credit score and help you maintain a good credit score.

  • Payment history is critical. You will want to avoid late payments or non-payment. Payment history is the most influential variable for both FICO and VantageScore. It makes up 35% of your FICO score. This importance means that just a single late payment can hurt your credit score, and multiple late payments can make an excellent score virtually impossible.
  • Credit utilization ratio is also significant. A credit utilization ratio is a comparison between your credit limit and the amount you borrow. This figure accounts for 30% of your credit score. A lower utilization ratio is better for your credit score, which is why paying down your balances on a credit card can help improve your credit.
  • Keep your accounts open. FICO considers the length of your credit history. It takes time to build an excellent credit score. The longer your history, the higher this portion of your score. VantageScore gives account history slightly less weight. However, it is still important.
  • Opening too many accounts quickly can damage your credit score. A credit score also measures your borrowing habits. While some people may have a reason for opening many accounts, such as collecting credit card rewards, it affects your credit score. When you open many credit card accounts, it looks like you are borrowing recklessly or cannot manage your credit. Keeping a couple cards and loans is your best option for building an excellent credit score.
  • A credit check, which lenders run when you apply for credit, can also affect your score for the same reason as opening too many accounts too quickly.
  • You need to have a mix of credit. You can increase your chances of getting an excellent credit score by having different types of credit and loans. In other words, you can’t merely open a few credit cards and earn an excellent credit score quickly. However, correctly managing a credit card or two, an auto loan, a mortgage, and a personal loan or line of credit will increase your credit score.

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