I recently had a question from one of our loyal visitors, I thought it was a great Q&A to share and explore a bit, here it is:
“My credit score is 695. Is that considered a good number for a credit score? If not, how do I improve it?”
-John B. from Texas.
Short Answer: 695 is a “Fair” Credit Score
A “fair” credit score is seen by many lenders to be an acceptable credit risk, usually approved for credit, but you will probably not receive the more competitive offers and rates that having a good credit score can provide.
Any score below 700 could probably use some improvement. If you want some of the best rates and terms lenders have to offer, then you will want to work on raising your credit score to at least 725, which is considered by most to be well within the “good” range.
How Does a 695 Credit Score Compare To Others?
Most credit scores including FICO and VantageScore range from 300-850, the higher the better. Within that range, there are different categories, ranging from very poor, to excellent. Here’s a general idea of the ranges and their “ratings”. Your range will be indicated below.
- 750-850 – Excellent (30.3% of people)
- 700-749 – Good (12% of people)
- 650-699 – Fair (18.3% of people) ← You Are Here
- 550-649 – Poor (34.1% of people)
- 300-549 – Very Poor (16.7% of people)
5 Steps To Improve Your Credit Score
Step 1: Before you start, you need full access to 100% of your credit data. I recommend using FreeScoresAndMore to get your 3 credit reports & scores.
Step 2: Along with checking all 3 credit scores, you need to take a thorough look at your 3 credit reports. Check for errors, and signs of ID theft.
Step 3: Identify what’s dragging down your scores. That’s where FreeScoresAndMore shines.
Step 4: Develop a plan of action based on the factors which are dragging down your credit score the most.
Step 5: Execute your plan and watch your score rise with a comprehensive credit monitoring service like FreeScoresAndMore.
My score skyrocketed 111 points. Here’s how I did it.
What is a Good Credit Score?
Generally speaking, anything above 700 is considered a good credit score. A credit score of 695 is one notch below that threshold, which could cost you big in interest on any loans or credit cards you may be applying for in the future.
With a credit score of 695, you are only 5 points away from achieving a “Good” credit score. While “Good” typically starts at 700, I strongly recommend setting your sights on raising your score to at least 725.
Why 725+ Should Be Your Goal
I always say that 725 or higher is the score to shoot for. It gives you a little wiggle room before you’re too close to dropping below 700 again. Your credit score is constantly changing due to many factors such as your credit card balances, hard inquiries, new credit accounts, and so on. So having a score of 725 gives you a bit of room so you won’t easily drop below 700 without even realizing it.
How Is A Credit Score Calculated?
While exact details of how your credit score is calculated is an industry secret, we do know that credit scores are formulated using many different pieces of data from your credit report. This data is grouped into five categories as shown below. The percentage to the right of each one indicates how important it is in determining your credit score.
- Payment History – 35% – This is typically the first thing a potential lender will want to know. Have you paid your past accounts on time? Have you missed any payments?
- Total Amounts Owed – 30% – How much you owe on each of your credit accounts. Higher amounts does not necessarily mean you are high risk, other factors are considered as well.
- Length of Credit History – 15% – Generally a longer credit history will yield higher credit scores. But that’s not always the case, it also depends on how often you use your credit, and how responsibly you manage your debt.
- Types of Credit in Use – 10% – Credit score providers will consider the mix of credit accounts you have, such as credit cards, retail accounts, auto loans, mortgages etc.
- New Credit – 10% – Lenders want to know if you’ve recently been applying for many credit accounts in a short period of time. That can often represent a greater risk to the lender.
Start with #1: As you can see above, your payment history is the biggest factor affecting your credit score. Because of this, paying your bills on time is the single most important thing you can do for your credit score. If you have any past due accounts, pay them right away to bring them current. Continue to make your payments on time.
Don’t forget #2: Total amounts owed is the second biggest factor affecting your credit score. This takes all debt into account, however, your credit cards are probably going to be your highest priority. Keep them paid down to no more than 25% credit utilization. This means to make sure you only use 25% or less of your total credit line on all credit card accounts in your name.
Don’t Close Your Unused Credit Card Accounts!
Closing your unused credit card accounts lowers your credit utilization ratio. This is a bad thing for your credit score. As long as your accounts are in good standing, keep them open. If you’re too tempted to use them when you know you shouldn’t, take some scissors to those suckers – problem solved! Just keep one or two cards that you actually use, and use them wisely.
Sometimes the culprit is an error (or errors) on your credit report. Have you checked over your report thoroughly to make sure your creditors have reported your account and payment information correctly? For example, maybe XYZ Auto Finance Company erroneously reported that you had missed a payment a couple months ago? Errors do happen, be sure to check your report for any errors and get them fixed ASAP, and get your credit score back on track.
No errors, now what?
If there are no errors on your credit report, and no bankruptcy, repo etc., then what about your credit card balances? For the best credit score possible, keep your credit card balances low. What’s considered low? Keeping your CC balances 25% or less of your total credit line is a good guideline.
Keep Your Credit Card Balances Low
As I mentioned above, keep your credit utilization ratio below 25%. Anything higher than that can really drag down your credit score.
For example we’ll say you have two credit cards, one has a $3,000 credit limit, the other has a $5,000 limit. Your total “credit line” or “credit limit” on your credit cards would then be $8,000. If you carry a total balance on both cards of $4,000, your total balance would be occupying 50% of your total credit limit (or 50% credit utilization ratio), this is not good for your credit score. If this sounds like your situation, work on paying down your credit card balances as much as possible.
If you cannot figure out why your credit score is low, it could be because you have too much debt such as personal loans, student loans etc. Or it could simply be that your credit history is too short. In any event, our credit score estimator may be able to help you figure out what is bringing down your credit score, give it a try.
My score shot from 666 to 777. Learn How in 3 Steps.