"What Is a Good Credit Score?" - Napoletano

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Understanding Credit Scores

In this article, Napoletano describes what is considered a "good" credit score and explains why acquiring such a score is vital in personal finance. Credit scores range from 350 to 800 and according to Napoletano, a score between 660 and 780 is considered "good". Furthermore, she explains that while lenders consider many factors when reviewing a credit application, credit score is one of the main ones. Higher credit scores means individuals are open to more diversified borrowing options and are typically charged lower interest rates on products such as credit cards, mortgages, and auto loans. 

How Credit Scores Are Determined

Napoletano also specifies how credit is scored, explaining how there are two separate entities which work together to create a credit score: credit bureaus and credit scoring agencies. The main three credit bureaus are Equifax, Experian and TransUnion, which track credit history including credit accounts, payment history, delinquencies, collections and any inquiries, and are all freely available weekly.

In terms of credit scoring agencies, the main two agencies are Fair Isaac Corp. and VantageScore, which both use credit history information to calculate a credit score. However, it's important to recognize how these services work with different algorithms, meaning a credit score from one agency will slightly differ from another. This means that the "good" ranges for FICO and VantageScore somewhat vary, with FICO having a range between 670 to 739 and Vantage between 661 and 780. Ultimately, while there are some differences between the scores, they are all designed to predict how likely someone is to pay a loan back on time.

The Importance of a Good Credit Score

Napoletano reflects on the importance of maintaining a "good" credit score, explaining how it gives people the opportunity to live life on their own terms with more financial freedom. Maintaining a good credit is synonymous with having a history of responsible debt management meaning you're considered a lower-risk borrower and are given more flexibility and lower interest rates compared to those who have a history of missed payments.

Moreover, a good credit score can also be helpful when applying for jobs, rental houses, and utilities. Finally, a good score allows you to earn savings when making large purchases such as with home improvement and electronics which often have promotional interest rates for their store credit cards. 

Tips for Building a Good Credit Score

Lastly, Napoletano offers some tips for building a good credit score:

1. Build a Credit History: Consider a secured credit card or use no-cost services like Experian Boost or Credit Karma to establish and build a FICO score.

   
   

2. Pay Bills on Time: Fully pay bills on time and resolve any past collections using automated payments.

   
   

3. Use Credit Tools: Take advantage of the latest credit tools, such as credit score simulators that demonstrate how potential actions can affect your score, which are freely available through banks, credit cards, or Credit Karma.

   
   

4. Live Within Your Means: Open a savings account with a budget plan to ensure that you can pay your bills on time without overspending.

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Sources

Napoletano, E. “What Is a Good Credit Score?” The Wall Street Journal, Dow Jones & Company, 28 May 2024, www.wsj.com/buyside/personal-finance/financialtips/what-is-a-good-credit-score.