FICO scores are the credit scores most lenders use to determine your credit risk. A good FICO score is crucial for many types of loans and credit, as well as qualifying for better interest rates or lower insurance premiums.

A good FICO score varies based on a couple different metrics. It helps to understand how FICO calculates your score, and what you can do to keep it in the ideal range.

Measuring A Good FICO Score

FICO scores are important factors for many lenders looking at your application for credit. There are two score ranges these scores follow, one that is standard and one for more specific instances and industries.

Your base FICO score is based on a range from 300 to 850. FICO breaks down this range based on its latest calculations using their own credit-scoring model. They regularly release updates to their credit scoring model, and the latest version of their consumer scoring model is FICO 9.

Here are the base FICO credit score ranges:

  • Poor: 300 - 579

  • Fair: 580 - 669

  • Good: 670 - 739

  • Very Good: 740 - 799

  • Exceptional: 800 - 850

The industry-specific scoring model follows a similar pattern, but with more room at either end of the range.

Industry specific FICO score ranges:

  • Poor: 250 - 579

  • Fair: 580 - 669

  • Good: 670 - 739

  • Very Good: 740 - 799

  • Exceptional: 800 - 900

FICO creates these industry-specific guidelines for credit scoring, tailored to fit data from each industry in particular. Though the scores are slightly different, they follow the same basic principles.

This means that a person with a high base FICO score will also likely have a high industry-specific FICO score.

What Is The Ideal FICO Score Range?

In general, the higher the FICO score, the better for most situations.

With that said, while a higher FICO score can typically make it easier to operate in the financial world, it is not always the only factor. At the end of the day, FICO scores are guidelines that companies use to assess risk.

Even with these guidelines in place, many lenders have their own rules and guidelines. For example, some lenders may base an applicant’s eligibility on other factors, such as their debt-to-income (DTI) ratio.

In some cases, even a person with an excellent credit score may still be denied for their loan. This may be for any number of reasons, such as a person having past due payments or other active open accounts with the same lender.

How Can You Improve Your Credit Score?

Improving your credit score is important to keep you operating uninhibited in the financial world. To do this, it is important to understand how FICO calculates your credit score and the steps you can take to improve it.

How FICO Calculates Your Credit Score

FICO uses 5 main components to create a credit score, each with their own level of importance.

Score breakdown:

  • Payment history – 35%

  • Current amount of debt – 30%

  • Length of credit history – 15%

  • Credit mix – 10%

  • New credit – 10%

It is easy to see that most lenders put a lot of weight on payment history and a person’s current debt. Now let's move on to what you can do about it. Here are three simple things you can do to ensure you have a great FICO score.

1. Make Payments On Time

Perhaps the most vital component of your credit score is your payment history. Making payments on time is the simplest thing you can do to have a large impact on your credit score. Having a long history (multiple years) of making on time payments, spread across various types of accounts (revolving accounts, installment loans, auto loans, mortgages, etc) will help even more.

2. Avoid Maxing Out Your Available Credit

This is another straightforward tip. While credit card companies give a person a credit limit, it is not a good idea to get near this limit, as most lenders will see this as a risk. Your utilization rate measure the total amount of credit you are using, divided by the total amount of credit available to you. Keeping a low utilization rate looks good to lenders, and raises your credit score.

This can cause a bigger hit than many people understand. For instance, a person with a $3,000 dollar credit card that is maxed out will likely have a worse approval rate than the same person who has $15,000 of debt but is still far below their credit limit.

While the ideal range is going to vary a bit, many credit experts agree that having a utilization rate of under 30% of your available credit is ideal.

For example, if you have a single credit line with a $10,000 limit, keep the balance below $3,000.

3. Don’t Open New Accounts Unless You Need Them

While not as much of an issue as the other two, opening up new credit accounts may actually lower your credit score, even if you intend to make payments on them. Only open credit accounts when you need them, and again, keep the balance low. Having too many inquiries within the last 2 years can lower your credit score, so only apply for what you need.

Final Thoughts

FICO scores are a common way for lenders to check a person’s financial standing and assess their risk as a borrower. Keep in mind that your FICO score changes over time, and a poor FICO score today is not a life sentence for you. No matter what your starting score is now, it is important to build up gradually so that you can ensure a good credit score in the future.

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