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When it comes to moving to the United States, one of your most important considerations should be your credit score. You probably already know that the higher your credit score, the better—but when is your credit score considered high enough in the U.S.?
In this article, we provide useful information about your credit score in the United States, including why it’s important, when it’s considered high enough and what steps you can take to establish and boost your score.
What is a credit score?
A credit score is a three-digit number that provides financial institutions, credit card issuers and other lenders and creditors with a snapshot of your credit history. Your credit score lets these institutions know whether or not you’re creditworthy. The higher your credit score, the more creditworthy you are. A high credit score indicates that you’re a responsible borrower, and as a responsible borrower, you’re more likely to pay use your credit wisely and repay your debts.
When lenders issue you a line of credit, they want to make sure that they are lending to consumers who are less of a risk: those who are more likely to repay their debts.
Naturally, lenders want to ensure they’ll be repaid, which is why you’re more likely to be approved for lines of credit if your credit score is high.
How is your credit score calculated?
In the United States, there are three main credit bureaus: Equifax, Experian and TransUnion. These credit bureaus compile information pertaining to your credit history. That information is reported to them from lenders and creditors.
To calculate your credit score, five key factors are taken into consideration:
Payment history = 35%.
Your payment history reflects how you manage your debts: whether or not you make payments on time, if payments are delinquent or if you’ve filed for bankruptcy. As long as you consistently repay your debts when they are due for at least the minimum amount due, your credit score will benefit. Conversely, if you make late payments, miss payments or have your accounts become delinquent, your credit score will suffer.
Credit utilization ration = 30%.
Credit utilization ratio refers to the amount of credit you are using compared to the total amount of credit that is available to you. Generally, the lower your credit utilization ratio, the better. In other words, the lower you keep your balances, the better your credit score will be. If you’ve used most or all of the credit that is available to you however, your credit score will suffer.
Length of your credit history= 15%.
Lenders consider longer credit histories more favorable than credit histories that are newly established.
Hard inquiries = 10%.
Whenever you apply for a new line of credit, the lender will assess your credit history. This assessment is referred to as a hard inquiry. The more hard inquiries that have been posted against your credit history, the lower your credit score will be.
Types of credit = 10%.
In the United States, there are two types of debt that consumers can carry: revolving credit (credit cards) and installment credit (auto loans, mortgages, etc.) Having both types of credit on your credit history will benefit your credit score.
Using this information, the credit bureaus calculate your credit score into a three-digit number. Generally, that score ranges between 300 and 850, with 500 being low and 850 being high.
Credit score ranges
Below is an overview of your three-digit credit score and what it means:
800 to 850 = Excellent.
If your credit score falls between this range, congratulations! You are considered an ideal borrower.
640 to 800 = Very good.
Credit scores that fall in this range are considered above average and demonstrate that you are a responsible borrower; therefore, lenders will consider you a favorable candidate.
580 to 640 = Fair.
A credit score that falls in this range is considered below the average American consumer; therefore, lenders may view you as a riskier borrower.
580 or lower = Poor.
Credit scores that fall below 580 are considered poor, meaning that your credit history is far below the average American consumer, and therefore, you are a serious risk to lenders.
The higher your credit score, the better your credit history. And the better your credit history, the more likely it is you will be approved for loans, credit cards and other financial benefits that take your credit score into consideration. Insurance companies, some utility companies and landlords assess the credit history of would-be consumers.
Not only are you more likely to be approved for benefits if your credit score is healthy, but you are also more likely to receive favorable terms, such as lower interest rates and higher lines of credit.
When is your credit score high enough?
Your goal should be to achieve the highest credit score possible. However, it can be difficult to achieve a perfect score, as there are many factors to be taken into consideration. So, what credit score is considered “high enough” in theUS?
Generally speaking, a “good” or “excellent” credit score—a score that ranges between 640 to 800—is considered ideal. Most financial experts suggest that a credit score of 780 is the sweet spot. If you can manage to achieve a score of 780, it indicates that you are a responsible borrower. As a responsible borrower, you are more likely to be approved for credit cards and loans, pay less for your insurance premiums and have an easier time being having rental applications approved.
How to achieve a good credit score
How can you achieve a good credit score in the U.S.? There are several things you can do to keep your credit in good standing, including:
Make timely payments.
Since your payment history accounts for 35% of your credit score, making timely payments is extremely important. If possible, pay more than the minimum so that your credit score will benefit even more.
Keep your balances low.
Your credit utilization ratio also has a big impact on your credit score. Therefore, to keep your credit score in good standing, make sure that you keep your balances low. Avoid carrying high balances by paying off as much of your debts as you can.
Keep your credit active.
Credit bureaus only take into account the past two years of activity, so if you have inactive credit accounts, they won’t benefit your credit score.
Carry both revolving and installment lines of credit.
Having both types of credit is beneficial to your credit score, so it’s a good idea to have at least one credit card and one loan on your credit report.
Avoid applying for multiple lines of credit.
Steer clear of applying for several lines of credit at one time. The more hard inquiries on your credit report, the more your credit score can suffer.
The takeaway
A score of 780 is considered the ideal credit score. A good credit score indicates to lenders that you are a responsible borrower, which means that you’ll more likely be approved for loans, credit cards and other financial benefits. Nova Credit’s pool of resources and guides provide even more advice on boosting your credit score.
Use your foreign credit history to start your U.S credit history
New to the U.S.? Check if you can use your country's credit history in the U.S. to apply for credit cards and start your U.S credit history using Nova Credit.
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