What Is A Good Credit Score?

December 13, 2009 by Jim

ww.bargaineering.com/images/in_posts/credit-repair-sign.jpg" alt="Credit Repair Sign" class="r">Ever wonder what a good credit score is?

You can check your score at a variety of places that offer free FICO credit scores but how do you really know whether your score is good or bad? Is a 700 good? Or do you need an 800? How’s a 600?

I think it comes down to what you plan on doing with that number.

(If this post looks familiar, it’s because it was originally published earlier this year. I brought it back because a lot of people have been emailing me about their credit score and, in short, kind of freaking out. This post explains why your score might matter and how it only pays to focus on it so much…)

FICO credit scores range from 300 to 850, with the average being 680 – 700, depending on which of the three credit bureaus you ask. FICO stands for Fair Isaac Corporation, which is the company that created the FICO credit score formula. I wrote an entire Foundation article on FICO credit scores if you want a primer on the subject.

You will be able to find someone to give you a loan regardless of your credit score. You might have to put down a larger down payment and pay a higher interest rate, but even if you have the world’s worst score of 300, someone will give you a loan – you’ll just pay dearly for it.

So, what’s a good score then? It depends on the loan you’re trying to get. Here’s what myFICO lists as sample FICO scores and potential interest rates:

30 Year Fixed Mortgage Rates

These are sample rates on a $300,000 home mortgage.

FICO Score APR Monthly payment
760-850 4.460% $1,513
700-759 4.682% $1,553
680-699 4.859% $1,585
660-679 5.073% $1,624
640-659 5.503% $1,704
620-639 6.049% $1,808

On mortgages, it doesn’t really matter if you have a 761 or the perfect 850. According to Fair Isaac Corporation, the creator of the FICO score, the two are pretty much the same when it comes to mortgage loan interest rates. It’s a gross simplification but the point is you don’t need a perfect score and it’s almost impossible to get a perfect score.

Let’s look at auto loans:

36 Month Auto Loan Rates

These are sample rates on a $25,000 auto loan.

FICO Score APR Monthly payment
720-850 6.039% $761
690-719 7.587% $779
660-689 8.980% $795
620-659 11.738% $827
590-619 15.483% $873
500-589 16.140% $881

According to Fair Isaac, the ranges for auto loans and FICO scores is even wider. If you have a 720 or higher, you can expect to pay the lowest rates. Again, it’s a gross simplification but I think you get the idea.

If you aren’t getting a loan in the next year, knowing your score is useful but not immediately valuable. If it’s low, as in outside the first three tiers, then I’d work to try to improve it. If you are getting a loan, knowing your score is crucial because you want to know if you’re a few points shy of the next tier. If you’re close, you want to work to get yourself into the next tier so you can pay a lower interest rate.

(Photo: thetruthabout)

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