Credit scores are extremely important in your financial life. Understanding what they are, and how they are calculated is important. But even then, what qualifies for a good credit score? And what about the other end of the spectrum, what is a bad credit score?
The FICO 8 as a Credit Score Benchmark
While there are a few different credit scoring formulas, one of the most common is the FICO 8 score. Your FICO 8 score will provide a very close estimate to where you stand among all credit scoring methods. This is important to note, since when you retrieve your credit score from one of the different credit reporting companies, the number they provide should be close, but will not be exactly the same. This is partly because they are likely using a slightly different formula than the FICO 8. For that reason, using the FICO 8 as a benchmark will provide a very close approximation of your credit worthiness.
What is a Good Credit Score?
The FICO 8 score, and all credit scores, are broken roughly into the following bands: Poor, Fair, Good, Very Good, and Excellent. A good FICO 8 score is in the 670 - 739 range. Individuals with scores in this area are generally not turned down for loans, and shouldn’t experience too many financial roadblocks. Unfortunately, the reverse is true. Individuals scoring below 670 may experience difficulty finding a credit card, and will pay higher interest rates on their loans. This is in addition to the other non-financial aspects, such as experiencing more barriers to job markets. The chart below shows the ranges of the FICO 8 score.
Better than Good
A Very Good and Excellent credit score is even better than good (obviously). Individuals who achieve this range of credit score generally receive more favourable interest rates on loans, and have greater access to debt. Entering this level, over 740, will result in better financial options, and hence make your journey to financial freedom even easier. If you have an interest in achieving financial freedom in your life, there’s a good tangible target to shoot for: a credit score over 800.