What Is a Good Credit Score?

Nov 1, 2018

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A good or excellent credit score is something every points and miles enthusiast should strive towards. Credit scores range from 300 to 850, with scores from 300 to 650 considered “poor/fair,” 650-720 considered “good,” and anything above 720 considered “very good/excellent.” Ideally, you’d like to have a score of above 720, as that will more than likely grant you access to almost any credit card on the market.

Because of their lavish benefits, the cards like the Chase Sapphire Reserve or The Platinum Card® from American Express do require an “excellent” score. But not to fear; even if you’re sitting below 700 or don’t have a score yet at all, it’s easy to boost your score in a relatively short period of time. It’s also not as hard to get approved for cards like the Chase Freedom Unlimited or The Amex EveryDay® Credit Card from American Express with a lower credit score, so there are lots of options if you’re trying to make the jump to a “good” score.

While your score is important and often the first thing that credit card companies and lenders look at, there are lots of other factors that go into whether you get approved for a new credit card.  Income and your history with the card issuing bank are also key factors.  Additionally, once you get to a very good/excellent score, you won’t gain too much from having a 830 instead of a 760, kind of like how SPF 100 sunscreen doesn’t work significantly better than SPF 50.

That being said, it’s good to know how your score is calculated and how you can improve it. As most credit scorecards will show you, your score is determined by five main factors.

Missed Payments – 35%

The biggest factor in determining your score is how many missed payments you have on accounts in your name. Any missed payments on credit card or loan accounts can have a significant negative impact on your score, as even missing just 3% of payments is considered a significant red flag.

The easiest way to avoid missed payments is simple, and the first of the 10 credit card commandments. Pay your bill on time!

Credit Utilization – 30%

This factor is slightly counterintuitive, but can get you into trouble if you don’t understand how it works. Lenders like to see you using 1%-30% of your total credit on a month to month basis. So if you have two credit cards, each with a $5,000 credit line, and you’re consistently spending $4,000 a month on each of them, your credit utilization will be 80% and your credit score is going to drop.

Not to worry though; the easiest way around this is not to spend less on your credit cards by paying more with a debit card or cash. You can spend that $4,000 on each card every month, but make a payment of $3,500 a few days before your statement closes (or make smaller payments throughout the month). You want to ensure that your balance is as low as possible when your statement closes, because your closing balance is the only one reported to the credit agencies, and therefore the only one that effects your credit score.

Length of Credit History – 15%

While length of credit history is less of a factor in determining your score, it’s still quite important. While more than years of credit history is considered excellent, you’ll normally need a year or more of credit history to be considered for more exclusive rewards cards.

The only way to help your length of credit history is to wait, but its important not to close credit accounts, even if you might not use them as much any more. Instead of closing accounts, particularly ones that have been open for a long time, keep them around or downgrade them to other cards within the same network to avoid annual fees. You should also be sure to maintain minimal activity on cards you don’t use anymore to avoid the risk of having your account closed for you due to inactivity.

New Credit Accounts – 10%

When you apply for a new line of credit, a “hard pull” from the credit card company will factor into your credit score whether you’re approved or not. These “hard pulls” will remain on your report for up to two years, but will only factor into your score for one year.  One way to minimize the effect of a hard pull is to apply for multiple cards on the same day, as multiple pulls in a short period of time will normally count as one single pull.

Lenders see multiple account openings in a short period of time as a potential red flag. New accounts are a minor factor in computing your credit score, so don’t be too concerned if your score drops a few points after applying for a few new cards. However, it’s important to be wary of rules like Chase’s 5/24, which prevents you from opening a new Chase credit card if you’ve opened fiveor more credit accounts in the past 24 months.

Mix of Credit – 10%

Your credit mix is probably the least consequential when it comes to credit score and determining whether you’ll be approved for a new card. Ideally, lenders like to see a mix of credit cards, retail accounts, and loans. However it’s not important to have one of each. There are plenty of people who don’t have any loans and have no problem being approved for new cards.

How to Check Your Credit Score

Most credit cards you open will come along with a free FICO score calculator. This will make it easy to see where your score lies on the scale from good to bad and keep up to date on how you’re doing in terms of each of the categories listed above. You can also easily open accounts on sites like creditkarma.com and nerdwallet.com. These sites are free and can help you keep even better track of your score and its factors, and they’ll suggest certain credit cards to you that you’re likely to be approved for. You can also use these services to dispute any information on your score that isn’t accurate or appears to be fraudulent.

Things to Remember

Your credit score is a good indicator of whether you’ll be approved for a new credit card, but it’s not an absolute science. Even if you have what’s considered an excellent score, you can still be denied credit.

I’ve noticed a trend of credit card denials among college students or recent grads who seem to have a high credit score as a result of being an authorized user on a parent account for several years. Particularly for people just starting out, the length of your own personal credit history and total open accounts play a large role. Even if you’ve been an authorized user for years, it’s probably best to start slow, with one of these cards. After six months to a year of having your own credit, other more lucrative cards should become available to you.

Above all, remember that building your credit takes time. So keep paying your bill on time, keep your closing balances low, and be smart about opening and closing your accounts. A world of rewards cards awaits you!

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