2-Minute Money Manager: What’s Considered ‘Excellent’ Credit?

Welcome to your “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers. You can learn how to send in a question of your own below.

Today’s question is about credit; specifically, what credit score is considered “good”?

I’m fortunate to have a perfect 850 credit score. It’s a result of two things. First, I’ve never paid a bill late. Second, I’ve been using credit for a long time: 40-plus years. If you’d like to better understand what makes for a great score, as well as how to improve yours, watch the following video.

If you can’t deal with video, no problem: Just scroll down this page for the full transcript of the video, as well as some reader resources.

For more information on this topic, check out “Boost Your Credit Score Fast With These 7 Moves” and “11 Surprising Ways to Wreck Your Credit Score.” You can also go to the search at the top of this page, put in the words “credit score” and find plenty of information on just about everything relating to this topic. And if you’re having trouble with debt, you can find free help at this page of our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, everyone. Welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Here’s our question for today. It’s from John:

“On credit card descriptions they make reference to credit as excellent, good, average, fair and poor. Is there a breakdown of these categories?”

Yes, there is, John.

While there are several companies that offer credit scores, the most widely used credit score is called a FICO score and comes from the company that invented credit scoring, Fair Isaac. You can go to their website and they’ll tell you all about credit scores, including what qualifies for everything from a “poor” to an “excellent” score. A score of 850 is as high as you can get, with scores ranging from zero to 850.

Here’s the breakdown:

• Excellent credit is 750+
• Good: 700-749
• Fair: 650-699
• Poor: 550-649

Those are the general breakdowns, although they’re subjective: Some lenders may have different criteria. But essentially if you want to have excellent credit, you’ll need a FICO credit score of 750-plus. You can read all about this at myfico.com.

Here’s how FICO credit scores are calculated:

• 35 percent of your credit score is determined by how good you are at paying bills. That means paying on time, every time, for long periods of time. This is called your “payment history.”
• 30 percent of your credit score is determined by how much you owe. This is called utilization. Let’s say you’ve got a $10,000 credit limit on your credit card, and you’ve got a $3,000 balance. You have utilized 30 percent of your available credit. Therefore, you’ve got a 30 percent credit utilization ratio. The lower you keep that ratio, the better.
• 15 percent of your credit score is determined by the length of your credit history. I’ve been borrowing money for many, many years. I’ve never paid a bill late. Therefore, my credit history is long and it’s good.
• 20 percent of your credit score is determined by two factors — the mix of credit you have (10 percent) and new credit for which you apply (10 percent). What they like to see is the successful use of different kinds of credit. For example, credit card debt is a form of what is known as “revolving debt.” By contrast, mortgage and car loans are called “installment loans.” A mix of such different types of credit helps your score.

If you want to improve your credit score, the first thing to do is pull your credit report from AnnualCreditReport.com. You are entitled to one free credit report from each of the big three agencies every year. So, every few months, you can pull one from a different agency and see what your credit looks like.

Why are you pulling your credit report? To make sure there are no mistakes in it. A lot of credit reports have mistakes, and those can impact your score.

You can pull your credit report for free, check for mistakes, and typically dispute them right on the credit bureau’s website. It’s the first thing you want to do to clean up your credit.

Then, make sure you pay your bills on time, for long periods of time. Do that, and you’re going to build your credit history and score. Aim for that 750. And by the way, if you have a 750, you don’t need a perfect 850. Once you get over the threshold into “excellent,” there’s no prize for making your score perfect.

I hope that answers your question, John. Let’s close with our quote of the day. This one is from Dodie Smith, English children’s novelist and playwright:

“No bathroom on earth will make up for marrying a bearded man you hate.”

Obviously, that’s an old one, but the thought is well-taken: Don’t marry for money. Make it a super-profitable day and meet me right here next time!

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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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