How to Get a Good Credit Score by 2014 Standards

How do you get a good credit score, and what is considered "good" in 2014? These are two of the most common questions people send to us by email. In this lesson, you'll learn what it takes to achieve a good credit score. Let's start with a basic overview of scoring systems and go from there.

How Credit Scoring Works

Credit scores are three-digit numbers derived from information found within a consumer's credit report. The report itself contains a variety of information relating to your financial past. This information is put through a computerized scoring system to produce a three-digit score.

There are many different scoring models in use today. The two most common are the FICO score and the VantageScore. The FICO scale ranges from 300 to 850. The VantageScore, which is offered by the three credit-reporting bureaus, goes from 501 to 990. In both cases, a higher score is better.

Having a good credit score can benefit you in several ways. First, it helps you get approved for financing, whether it be a mortgage loan, a personal loan, or a credit card. Having a good score will also help you obtain a lower interest rate from the creditor, and this could save you a lot of money over time.

Banks, lenders and creditors use these scores for risk-analysis purposes. A borrower with a low score is considered a higher risk, as far as lenders are concerned. These borrowers have a harder time getting approved for loans, and they get charged higher interest rates when they do get approved.

On the other hand, a borrower with a high score is considered a lower risk. These borrowers have an easier time qualifying for financing, and they also qualify for lower interest rates.

What Is Considered 'Good' These Days, in 2014?

We'll talk about how to get a good credit score in a moment. But first, I want to explain the labels being used here.

Bad, good, average, excellent – what does it all mean? What is considered a good credit score these days, in 2014? This will depend on the scoring system being used, as well as your financial goals. For instance, when it comes to getting approved for a mortgage loan, a score of 640 or higher on the FICO scale is considered good (but not excellent). Borrowers in this range are generally able to qualify for mortgage loans.

The "good" range might be slightly lower for credit card approval, because you're dealing with a smaller amount of financing (when compared to a mortgage).

Some sources say a good credit score starts at around 700, or slightly higher.

Don't get hung up on numbers at this point. Instead, focus on adopting good financial habits that will result in a positive credit profile. In the next section, we will discuss some of the specific steps you can take to improve your score in 2014.

How to Get a Good Score: The 5 Key Factors

If you want to know how to get a good credit score, you must start by examining the individual factors that drive the numbers. There are five of them, and they are all listed below. The percentage beside each factor shows how much it "weighs" in the overall scoring formula. (Note: The information below was adapted from the MyFICO website and mainly applies to the FICO formula. But all scoring systems consider these five factors, to some degree. So they are universally applicable.)

Payment history (35%) — This weighs more than any other single factor, when it comes to credit scoring. Your payment history is a record of how you have repaid your debts in the past. It includes your payment history for credit cards, installment loans, retail accounts, mortgage loans, and finance company accounts. If you want to get a good credit score, you should do everything possible to avoid late payments on these types of accounts.
Amounts owed (30%) — This is another significant factor when it comes to developing a good credit score. Owing money on a credit account doesn't automatically make you a high-risk borrower. But if you are using a high percentage of your available credit limits, it could result in a lower score. For instance, if you have two retail charge cards, and they are both nearly maxed out, you are using a very high percentage of your limits. This high "utilization ratio" can lower your score.
Length of credit history (15%) — There's not much you can do about this item. But it is one of the five key factors that influence your credit score, so it deserves to be mentioned here. Generally speaking, a longer history will increase your FICO score. But this factor does not weigh as much as the two previous items (payment history and amounts owed). So it doesn't deserve as much of your attention.
Types of credit used (10%) — Credit scoring systems also consider the different types of credit that you use. They look at credit cards, mortgage loans, installment loans and retail accounts. As with item #3, this one does not weigh heavily on your score. So focus your attention on those 30% and 35% factors listed above.
New credit (10%) — This is the last of the five factors that influence your score. Here's what you need to know about it: Opening multiple credit accounts in a short period of time could lower your score.

So, how do you get a good credit score? For starters, you should pay close attention to your payment history and the amounts owed on your various credit accounts. These two factors alone account for 65% of your overall score. Thus, they are the most important factors for anyone trying to get a good credit score.

3 Things You Can Do Right Now

You are not powerless, when it comes to your credit score. There are plenty of things you can do to maintain a good rating. Here are three specific steps you can take:

Pay all of your bills on time. This is the most important thing you can do to achieve a good credit score.
Use credit sparingly. An ideal scenario is to have a relatively low balance, compared to the available limit. The worst thing you can do is max out your cards.
Get copies of your credit reports from all three of the reporting agencies (Experian, TransUnion, and Equifax). Review them for accuracy. Dispute any errors to have them corrected. Mistakes on your credit reports can have a negative impact on your score.

I can't stress the importance of maintaining a good payment history. A single late payment on a credit card, car loan, or mortgage can lower your score by more than 70 points (if the creditor reports it). This is the single most important step you can take to get a good credit score. The other factors matter to some degree, but not as much as the payment history.

Summary & Conclusion

Despite the length of this article, we have only scratched the surface of credit scoring. I encourage you to research this topic further, and to learn as much as you can about credit scores and how to work. This is especially important if you plan to obtain financing in the future, such as a car loan or (more important) a mortgage loan.

MyFICO.com is an excellent tool to help with your research. This website offers a wealth of articles and tutorials, including a forum where you can post your questions. It is owned and operated by the company that developed the FICO scoring model. So they know what they're talking about.

I hope this information helps you get a good credit score in 2014. If you have additional questions on the subject, you can enter them into the search box at the top of this website. We also have a Q&A form you can use.