The wonderful news about having a credit score of 670 is that you can legitimately claim that you have a good credit score. But the bad news is you alone barely have a good score.
If you lose a point and slide to 669, you go from good credit to fair credit. Once you dip below 670, you’re also on the edge of subprime territory. With subprime credit comes higher interest rates and increased difficulty getting approved for credit cards and loans.
So make sure your score is going in the right direction – up rather than down. The easiest way to do this is to understand how credit scores work, so you can use that knowledge to your advantage.
FICO score ranges
You have a multitude of credit scores, but since most lenders ask for a version of the FICO score, I’m focusing on this one. But even if your lender has decided to use a version of VantageScore instead of FICO, both scores consider similar factors. If you build a better FICO score, you’ll likely improve your VantageScore as well.
Here are the FICO score ranges:
- Exceptional: 800-850.
- Very good: 740-799.
- Good: 670-739.
- Fair: 580-669.
- Poor: 300-579.
So how does your FICO score of 670 compare to the average FICO score in the United States? The average FICO score in America, as of April 2021, is an impressive 716. This is an increase of eight points from the previous year, which was 708 at the end of April 2020.
According to FICO, 12.5% of the population has a FICO score between 650 and 699, and 62.8% of people have a credit score above that. But there’s no reason you can’t raise your score into the “very good” range, which starts at 740. Understanding how your credit score is calculated can help you improve it.
How your FICO score is calculated
There are five factors that make up your FICO score. Here is each factor and the weight given to it by the FICO algorithm:
- Payment history: 35%.
- Amounts due: 30%.
- Length of credit history: 15%.
- New credit: 10%.
- Loan composition: 10%.
Payment history: 35%
You can have a big impact on your score just by paying all your bills on time. That means every bill, including your cell phone, utilities, car payment, or credit card.
When a late payment hits your credit report, it can drop your score a bit. The higher your score, the greater the drop.
According to myFICO, a 30-day overdue payment can drop a score of 607 into the 570-590 range, a decrease of 17 to 37 points. But if you have a score of 793, you can drop between 63 and 83 points on your score, dropping you into the 710-730 range.
Do whatever it takes to pay your bills on time. This may mean setting up automatic payments or using email or text reminders.
Amounts due: 30%
This factor has the second biggest impact on your score. Your credit utilization ratio is the amount of credit you have used compared to the amount you have. If your ratio exceeds 30%, your score will suffer.
Example: You have a credit card with a balance of $800. Let’s say the card has a credit limit of $2,000. Your utilization rate is 40% (800/2000 = 0.40), which is way too high. In this case, your balance should not exceed $600 to maintain a 30% ratio.
But to really boost your score, here’s a tip: if you keep your balance below 10%, which would be $200 (200/2,000 = 0.10), you’ll max out that part of the FICO score.
Length of credit history: 15%
The FICO algorithm takes into account how long your credit accounts have been open, from the youngest to the oldest account. The score also looks at the average age of all your credit accounts. The longer you’ve had credit and successfully used it, the better for your score.
New credit: 10%
Every time you apply for a credit card, it leads to a difficult request. An investigation can reduce your credit score by zero to five points.
When you’re hanging on to a score of 670, the last thing you need is to lose five to 10 points because you decided to apply for two new credit cards. So limit new credit applications while you work to improve your score.
If you’re looking for a mortgage and want to compare offers, the FICO score allows you to shop around for rates. This means you can shop, but do so within 45 days. This will make it count as one request instead of many.
But note that some scores limit rate purchases to a 14-day window. So it’s best to do your comparison shopping in as short a time as possible.
Credit mix: 10%
I know it seems like 10% is small enough to ignore, but every point counts.
Here’s how the credit mix contributes to your score: If your report shows you’ve been able to responsibly use different types of credit over time, that makes you look very creditworthy.
There are revolving accounts and installment accounts. A revolving account offers a credit limit or line of credit. The borrower decides how much credit to use and repays it when due or over time with interest. Examples of revolving accounts include credit cards and home equity lines of credit, or HELOCs.
Installment loans have a fixed interest rate and the monthly payment is the same every month. Examples include mortgages and student loans.
How to Improve a 670 Credit Score
There is no silver bullet to boost your score by 100 points in a week. But if you follow these tips and be patient, you’ll start to see your score go up.
- Pay your bills on time: You now know how Important payment history is for your credit score. Know when bills are due and make sure they’re paid on time.
- Do not close credit card accounts: If you close a credit card account, you will lose available credit. This can increase your credit utilization rate. You also risk shortening the average age of all your credit accounts. Unless there is a compelling reason to close the account, keep it open and use the card once a month to keep the account active.
- Do not apply for new credit: Avoid your score dropping due to inquiries. If you legitimately need a new card, that’s fine. The extra credit available should make up for the ding in your score. But distribute the applications so that your score increases, not decreases.
- Do not carry balance: Set a budget and track your spending. If you don’t know how much you’re putting on your credit card, you’ll probably spend more than you can repay each month. Credit cards have compound interest on balances. This means debt is growing fast and high balances will lower your score.