Is 600 Good Credit? | credit cards
The average US FICO score as of April 2021 is 716, which falls within the range of good credit. A FICO score of 600 is below average and falls within the range of fair credit.
Although there are credit cards that aim for fair credit, interest rates will be high. You may even have trouble getting it eligible for a mortgage since 600 would be considered a subprime credit rating by many lenders.
But you don’t have to stay in the fair credit range. There’s no reason you can’t get your 600 score in the good credit range.
All you need is a better understanding of how scores work and the right strategies to improve your score.
What are the FICO score ranges?
FICO scores range from 300 to 850, with 850 being a perfect credit score.
Here are the FICO score ranges:
- Exceptional: 800-850.
- Very good: 740-799.
- Good: 670-739.
- Mass: 580-669.
- Arm: 300-579.
As you can see, good credit starts at 670, so a score of 600 isn’t far off. Your FICO score is made up of five factors. Once you understand them all, you’ll have a better idea of how to improve your score.
How your FICO score is calculated
It’s possible that your lender will request a VantageScore, but since 90% of lenders use some version of the FICO score, I’ll focus on FICO.
There are five factors that make up your FICO score. Here is each factor and the weight assigned to it by the FICO algorithm:
- Payment history: 35%.
- Amounts due: 30%.
- Credit history length: 15%.
- New credit: 10%.
- Credit mix: 10%.
Payment history: 35%
Your payment history is the most influential factor in your score. As long as you pay all your bills on time, you’re in good shape. Lenders want to see that you paid as agreed, and that tells them you have good credit. Once you miss a payment, it can really lower your score.
Amounts owed: 30%
You have a credit utilization ratio, which is the amount of credit you’ve used compared to the amount that’s available to you.
Here’s an example: Let’s say you have a credit card with a $1,000 credit limit and a $700 balance. This gives you a credit utilization rate of 70% (700/1,000 = 70%). This ratio is considered unacceptable. You need a ratio of less than 30% to avoid a drop in your score.
But here’s a tip: to really maximize this part of the score, keep your utilization rate below 10%. Using the details of our example, this means your balance should not exceed $100 (100/1,000 = 10%).
And before you think you can add balance to one card while keeping others low, know that the algorithm looks at your usage rate for all your cards and the ratios for each credit card.
Credit history length: 15%
The longer you have good credit, the better. That doesn’t mean you can’t have a very good score if you’ve only been using credit for a few years. But decades of excellent credit will certainly help you achieve a very good or even an excellent FICO score.
New Balance: 10%
Every time you apply for a credit card, it’s possible that your credit score drops by two to five points. The amount of the reduction, if any, depends on other factors in your credit report.
As you try to improve your score, limit new loan applications. Space these out about six months apart. There’s also a psychological reason to avoid much lending. Your credit card issuer reviews your credit report about every month. This is a gentle request that will not lower your score.
But when the issuer sees you asking for a lot of credit, it looks like you’re in for a financial crisis. This could lead to a reduction in your current credit limit, reducing the issuer’s risk.
Remember the credit utilization rate we discussed above? If your credit limit is reduced, you will lose some of your available credit. This increases your ratio and lowers your score.
Credit Mix: 10%
To get good grades on this part of the FICO score, you must show that you can handle different types of credit. For example, your credit report may show that you have a student loan, mortgage, or car loan that are installment loans.
Revolving credit is another type of credit. With this type of loan, you have a limit, or line of credit, and you have the flexibility to use as much or as little as you need. Examples of revolving credit include credit cards, home equity loans, and personal lines of credit.
The longer you have credit, the more likely you are to have a good mix. So don’t buy a car to get an installment loan on your Schufa. Life ensures that we end up with a multitude of credit-related accounts.
How to improve your 600 credit score
There’s no magic formula to get your score up to 670, but if you follow these steps, you’ll be on your way to good credit:
- Create a budget and track expenses. There are many free apps and websites that will help you automate this. If you prefer to create your own spreadsheets, that’s fine too. Just make sure you have a process in place.
- Pay bills on time. I mentioned earlier that payment history accounts for 35% of your FICO score. If you pay all your bills on time, everything is fine. Do whatever is necessary to achieve this, such as: B. setting up email or text reminders.
- Keep low balances. if you If you keep the credit card balance below 10% of your credit limit, you will see a positive impact on your score. However, this assumes that you pay bills on time.
- Limit new loan applications. Every time you apply for a credit card, your credit score can drop a few points. You are currently in a score building phase. For the time being, therefore, refrain from actions that could negatively affect your score.