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There are different opinions as to what a “good” credit score is but generally the answer is Yes, 720 is considered a good credit score. However, whether or not 720 is a good credit score is more than just an opinion to lenders. Seeing how lenders perceive that score, what its advantages are, how you can attain or exceed it, and more are worthy of our examination in this article.
Highlights / Key Takeaways
- 720 is a good credit score
- Having a credit score of 720 or higher is realistic
- Your credit score affects many aspects of your life
- Maintaining a good credit score is a matter of commitment and self-discipline
What Can You Get with a 720 Credit Score?
If you have a credit score of 720, many doors open for you that may have otherwise been closed. Having such a good score affects many aspects of your life:
- Getting lower interest rates on your loans
- Being approved for an auto loan
- Securing a mortgage for a new home or approval to rent
- Obtaining a student loan
- Qualifying for credit cards or consumer loans
- Having an application for insurance approved
- Being hired for a new job
In addition to all of these advantages of having a score of 720, you will also be approved for higher loan amounts than someone with a fair or marginal credit score.
Being approved for a personal loan of $10,000 or more is within reach for you, as is a mortgage for hundreds of thousands of dollars (depending also on your income, employment status, and other variables).
Finding the right lender for your personal loan can be found here.
Whatever type of loan you’re seeking, having a credit score of 720 improves your chances of getting approved for favorable interest rates.
How to Get a 720 Credit Score: Tips and Strategies
If you want a 720 FICO score, which is helpful for loan qualification when buying a new home, there are several steps you can take. According to Experian, one of the three credit bureaus, you should:
- Pay your bills on time. Late payments are of major concern to lenders because of the negative impact they have on their profit margins.
- Reduce your credit card balances. Credit card issuers measure something called your “utilization rate,” which is the percentage of your credit limit you’re using. For example, having a $3,500 balance on a card with a credit limit of $7,000 is a 50% utilization rate. Ideally, you want your utilization rate to be under 30%.
- Don’t take on new debt frequently. Taking on new debt lowers the average age of your accounts, which is an important factor in determining your credit score. Opening new accounts repeatedly will likely keep your score under 720.
- Have several different types of loans. While it’s not necessary to have every kind of loan available, having several types helps your credit score. Being current on a credit card, auto loan, and mortgage is adequate to help you attain a good credit score.
- Dispute inaccurate information on your credit report. Lenders often make errors when reporting to credit bureaus. If you see errors in your report, dispute them. Credible lenders will correct their mistakes if they’re aware of them.
- Leave old cards open. Even if you’re not using or rarely use an old card, don’t close the account. It adds to the length of your credit history, which creditors like to see, especially if you carry low balances.
- Check your credit report often. Because so many people have credit issues stemming from the pandemic, you can get a free credit report every month from annualcreditreport.com through the end of 2023. Take advantage of that and check your credit report at least quarterly to make sure the information on it is accurate and accounts aren’t being opened without your knowledge.
How to Scale Up and Achieve an Excellent Score
If you follow the tips you’ve just read, you’re going to have a good credit score. If you want to achieve an excellent credit score, such as a credit score of 800, you’ll also need to be patient and let time take its course.
Raising your credit score is much like losing weight – it takes time. You can’t go from having a fair credit score all the way to excellent in a few short weeks. A credit score of 800 or higher can take you months of bringing accounts current and reducing your balances before you see the needle start to move.
A 720 Credit Score vs. Other Credit Score Ranges
Knowing where your credit score stands in relation to others can help you maintain perspective by appreciating what you’ve accomplished score-wise and how much further you have to go to attain a 720 score or higher.
FICO Score Ranges
According to credit rating service Equifax, here is the range of credit scores in ascending order:
300 to 579: Poor
Being approved for new credit will be difficult if you're in this range. However, taking steps to improve your credit by following the steps above, over time, will help.
580 to 669: Fair
In this range, you’re going to be considered a “subprime” borrower, which is not a category that endears you to lenders. Subprime means higher risk, which lenders tend to avoid, especially considering the subprime meltdown a few years back.
670 to 739: Good
This is the range a score of 720 falls in. By being here, you’ve shown you can handle credit well, and you’ll have an easier time being approved for additional credit and a better interest rate.
740 to 799: Very Good
You’re making serious progress in this range. You’re seen as being credit-worthy, and you can increase your credit limit or ask for a better interest rate. Very good credit can give you some additional leverage with lenders.
800 to 850: Excellent
This is the top rung of the credit score ladder. In this range, you’re considered low-risk and will have a much easier time securing a credit card, loan, or mortgage. Lenders want to do business with people who have excellent credit. Kudos to you if you’re in this category.
Your credit score is determined by either FICO or VantageScore, which have their own scoring criteria.
For example, your FICO score is calculated using many different criteria, including your payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
VantageScore bases your score on the contents of all three credit bureaus (Equifax, Experian, and TransUnion). In general, VantageScore credit scores are based on payment history (40%), age and type of credit (21%), percentage of credit used or utilization rate (20%), total balances (11%), recent credit behavior, including hard credit checks (5%), and available credit (3%).
VantageScore credit ranges are also different than FICO’s. They are:
- Excellent: 781 to 850
- Good: 661 to 780
- Fair: 601 to 660
- Poor: 500 to 600
- Very Poor: 300 to 499
With FICO and VantageScore, a credit score of 720 is considered good.
What Factors Affect a Credit Score?
There are five factors that affect your credit score:
- Payment history: When you don’t pay on time, creditors and lenders lose money. Being even 30 days late with a payment can lower your score.
- Amounts owed: The more payments you need to make every month and the larger the amounts owed, the greater the impact on your credit score.
- Length of credit history: The length of your credit history could be compared to a potential employer examining the length of your employment history. The longer you can show that you’ve been responsible and successful, the higher your standing will be.
- New credit: Applying for too much new credit is a red flag, which lowers your credit score. It often implies someone is applying for credit because of financial difficulties.
- Credit mix: Having a successful credit history with different types of credit, such as credit cards, student loans, auto loans, mortgage, etc., will improve your credit score.
Falling short on any of these parameters won’t necessarily put you in a high-risk category for future credit, but you also may not be able to secure the most favorable interest rates.
The Effect of Credit Score Ranges on Interest Rates
The range you fall within will significantly affect the interest rate you’ll pay. For example, with poor to fair credit, you may need to apply for a “secured credit card,” which is a card you can obtain by depositing money with the lender, which then becomes your credit limit. The interest rates for secured cards can fall anywhere between 26% and 39%.
On the other hand, being in the good to excellent range, which includes a score of 720, will get you much more competitive interest rates on credit cards, ranging from 13% to 22%. Of course, the higher your score, the lower your interest rate will be.
The Characteristics of People With a 720 Credit Score
There are two ways to measure the characteristics of people with a 720 credit score: financial and personal.
Financially speaking, people with a good credit score of 720 understand the importance of the FICO and VantageScore credit ranges and complete the steps to score high, including:
- Paying their bills on time
- Keeping their balances low
- Having a long credit history
- Having a good mix of credit
They are also more likely to be Baby Boomers.
Personal traits of people with good credit scores include being responsible, organized, patient, and having a good measure of self-control. These traits are subjective, but reasonable.
How to Maintain a Good Credit Score
Maintaining a good credit score means following all of the steps outlined earlier to establish a credit score of 720 or higher, including diligently checking your credit report and correcting any errors, which are more common than you may think.
You also don’t have to improve or maintain your credit score on your own. Some organizations that can help by giving practical advice or hands-on assistance are:
Reaching and maintaining a good credit score of 720 takes time, effort, and a good dose of self-discipline. In addition, securing credit with a reasonable interest rate has become increasingly challenging, and lenders are raising the bar for those applying for credit or a loan.
As has been emphasized here, be sure to pay your bills on time, don’t use more than 30% of any credit card’s limit, apply for new credit sparingly, and keep seldom-used cards open. Following these tips will get you to your desired credit score of 720 and beyond.