Is 700 a Good Credit Score? Understanding Credit Scores' Impact

Credit scores are three-digit numbers based on your credit history. Lenders use these scores to judge how you handle your financial obligations, from credit cards to car loans to home mortgages. A credit score of 700 is generally considered good, but there are ways to make it better.

Understanding Credit Scores

Credit scores generally range from 300 to 850. The higher your score, the less risky a lender will consider you to be.

There are three major national credit bureaus that collect financial information on you and put it together in the form of credit reports. Your credit report lists your credit-related accounts, such as credit cards and loans, including how long you have had the account, how much you owe on it, and your month-by-month payment history. 

Credit scores are based on that information, although they are not included in credit reports and must be obtained separately. The most commonly used credit scores are FICO scores. The credit bureau Experian, for example, breaks FICO scores down into these five categories: 

Poor: 300-579

Fair: 580-669

Good: 670-739

Very Good: 740-799

Exceptional: 800-850

FICO's major competitor, VantageScore, also rates borrowers on a scale of 300-850, but uses slightly different criteria and breaks the ranges down a bit differently.

Lenders use your credit score to evaluate how you handle debt and assess the likelihood of your repaying them if they decide to extend you credit. The better your credit score, the higher your odds of getting approved and the better your terms should be. People with good credit typically have more loan options to choose from, with lower interest rates and fees.

What Is Considered a Good Credit Score?

As mentioned, a FICO score of 670 to 739 is generally considered a good credit score, and a score of 700 falls in the middle of that range. A 700 score is slightly less than the recent national average of 715, but it is still good enough to qualify for many loans and credit cards.

For VantageScores, a good score is one between 661 and 780.

Factors Affecting Credit Scores

There are five key factors that go into computing FICO credit scores. 

Payment history

Your record of making consistent payments to your creditors is the most important factor in determining your credit score, accounting for 35% of it. Lenders want to see that you pay your debt obligations as agreed before offering you any additional credit. If you have late payments on your record, that will negatively impact your credit score, especially if it has happened repeatedly. 

Amounts owed

How much debt and credit you currently have is the second most important factor in determining your credit score, accounting for 30%. In particular, lenders are interested in your credit utilization ratio—the amount of revolving debt you currently have outstanding as a percentage of all the revolving credit, like credit card accounts, that you have available to you. For instance, if you have credit cards with credit limits that total $20,000 and you have outstanding balances on them that total $10,000, your credit utilization ratio is 50%. The lower your credit utilization ratio, the better.

Length of credit history

The FICO scoring model considers the age of your oldest credit account, the age of your newest one, and the average age of all your accounts. In general, the longer some of your credit accounts have been in effect, the more your credit score will benefit. Length of credit history accounts for 15% of your score.

Credit mix

The types of credit you have also plays a role in determining your credit score. This includes credit cards, installment loans, retail accounts, mortgage loans, and finance company accounts. While it's not necessary to have one of each, having accounts in two or more categories can help your credit score. Credit mix accounts for 10% of your score.

New credit

If you open multiple new credit accounts in a short period of time, that can hurt your credit score, although it only accounts for 10% of it. Lenders may be concerned that you're getting in over your head financially. Simply applying for credit can have a similar effect because your credit score will consider the number of hard inquiries on your credit reports by prospective creditors.

Benefits of Having a Good Credit Score

Having a good credit score will make it easier to get approved for a credit card or loan. Your credit score will also help determine the interest rate that lenders are willing to offer you.  

For example, a person with a credit score of 700 to 759 could recently get a 30-year fixed mortgage with an average interest rate of 6.715%, while someone with a score of 650 would have had to pay 7.536%. While that might not seem like a huge percentage difference, the difference in monthly payments would be $1,959 vs. $2,126—or $167 a month for the next 30 years.

In addition, having a good credit score can be of benefit in some non-lending situations, such as getting insurance or renting an apartment. Insurance companies and landlords may use your credit score as an indicator of how risky you would be to insure or rent to.

How to Improve Credit Scores

If you want to improve your credit score, here are some ways to possibly give it a boost. 

• Make every payment on time. Because payment history is the most important factor in determining your credit score, making all of your credit payments on time will continually improve your credit score. Setting up automatic payments from your bank account could help ensure you don't accidentally miss any payments. 
• Keep credit card balances low. The less of your available credit you use, the better your credit score will be. 
• Diversify your credit accounts. Having a variety of credit types is good for your credit score. For instance, if you have an installment loan or a car loan, getting a credit card might help improve your credit score over the long term. 
• Avoid unnecessary credit applications. Applying for too much credit in a short period can hurt your credit score, although the scoring models make allowances if you're shopping around for a new mortgage, for example.
  

If you have no credit score or a limited credit history, the following tips could help you build or improve your credit score.

• Become an authorized user on an existing credit card. If your parents, for example, have a credit card, they can add you as an authorized user to the account. The account and payment history will appear on your credit report. Just make sure the other person has good credit so it doesn't harm your credit score. 
• Apply for a secured credit card. Some credit card companies will approve you for this special type of credit card if you make a deposit into a dedicated bank account. The deposit amount may be the same as the card's credit limit. After using a secured card for a period of time you may qualify for a regular credit card.
• Apply for a store credit card. Many large retailers offer a credit card for use in their stores. These cards tend to be easier to qualify for, and the account and its payment history should appear on your credit report, helping you build credit. Interest rates on these cards can be very high, however, so plan to pay the balance off each month to avoid finance charges.
  

The Bottom Line

A credit score of 700 is considered good, but a better score than that can have additional benefits, such as the lowest interest rates. If you need to improve your credit score, making on-time payments and keeping account balances low could provide a boost. It may take some time, but your credit score will improve if you keep at it.