Is a Credit Score of 740 good?

A credit score is a number that is determined by a person’s credit history.

A good credit score opens up a lot of choices for you financially. The biggest benefit of a good credit score is being approved for financing at the best interest rates. A low interest rate means saving tens of thousands of dollars on large purchases.

A good credit score can have other benefits, too. For example, qualifying for credit cards that offer fantastic benefits.

These are just some of the ways a good credit score can be beneficial. In this article, we’ll take a look at what a good credit score is, what determines it, and how to improve upon it.

What is a Credit Score

A credit score range is expressed as a three-digit number from 300-850 and aims to determine your creditworthiness. The FICO credit score is the most commonly used. “The score is used by roughly 90% of financial institutions when considering giving you a loan or line of credit.” (investopedia.com)

A higher credit score means the borrower is considered a lower risk by lenders. Making lenders more willing to extend lines of credit to those with higher credit scores, often with lower interest rates. The opposite is true for those who have very poor credit scores.

What Determines Your Credit Score

The credit score is calculated by the three major credit bureaus: Equifax, Experian, and TransUnion.

Very few people know that you can request your free credit report and even better, you can get your credit score for free from all 3 major reporting agencies annually at www.annualcreditreport.com

It’s always a good idea to check all three of your reports because they may have different information about accounts or inquiries on them.

Credit reporting agencies evaluate specific aspects of your credit history to determine your score. 

Related: How to Build Credit When You Have None

Payment History

Payment history refers to how good the borrower is about making their payments on time. It has a huge impact on your score, it account of 35% of your score. So one of the best things you can do is ensure none of your monthly payments are late.

Diversity of Accounts

Diversity of accounts refers to how many different lines of credit a borrower has. Only having one credit card or only having a student loan might make it more difficult to predict borrower behavior. Rent or a mortgage, credit cards, car loans and student loans, and other types of loans are examples of different types of accounts. Also referred to as “credit mix” it accounts for just 10% of your score.

Balance Carried

Balance carried, or credit utilization, refers to how much of one’s total available credit is currently in use. For example, if you have a $1,000 balance on a line of credit with a $3,000 limit, that is 30% utilization. Credit card companies typically look at this number when determining your overall risk for granting new lines of credit. The lower the better because it indicates that you are being careful with your money and not overspending at an alarming rate.

The typical recommendation from the FICO scoring model is to use less than 10% of available balances on revolving accounts for best results.

The general rule is to aim for a credit utilization rate of 30% or lower.

“Among consumers with FICO credit scores of 740, the average utilization rate is 31.8%.” (experian.com) So don’t feel too bad, it you are a little above that 30% usage mark.

Your credit utilization is the second biggest factor in determining your credit score accounting for 30%.

Credit Checks and New Credit

Any time you apply for a new line of credit, there will be what is often referred to as a “hard inquiry” on your credit report. These inquiries will cause your credit score to drop a few points. 

They can remain on your credit report for up to two years, but their impact fades over time. And while the hard inquiry may result in your credit score dropping a few points, if you’re adding to your credit mix, it might just balance out.

Alternatively, when you “rate shop” those usually only result in “soft inquiries” which usually don’t impact your score.

Overall the number of credit checks only accounts for 10% of your score

Credit History Length

Creditors like seeing a long credit history. It shows lenders you have more experience dealing with credit and makes it easier to assess the level of risk in lending to you.

Your credit history accounts for 15% of your score.

What is a Good Credit Score?

A person who has a good credit score would have an excellent credit history and be able to borrow money easily from banks and financial institutions at low interest rates.

The higher the number on your credit report card, the better the chances for approval for loans or other bank services in the future.

Good credit score = 670 – 739

While what is “good” can be subjective, we have research that tells us what generally gives us a good score. “According to FICO, the median credit score in the U.S. is in this range, at 723.” (credit.org) With a score in this range, you’ll have access to most lending with favorable interest rates.

What is a Bad Credit Score?

A bad credit score is a sign that a person has not responsibly paid off their debt and has had some financial mishaps.

A bad credit score does not necessarily mean that the person is irresponsible or a poor money manager. It just means that they have not been as responsible with their finances as they could have been.

A bad credit score can make it difficult to get things like a loan, mortgage, cell phone plan, etc. If you have a bad credit score, it’s important to work on improving it by paying back any debts

Bad credit score = 300 – 549 (300 is the minimum credit score – you can get lower)

This is again according to credit.org. If your score is in this range, you aren’t likely to be approved for any lines of credit. Thus, you will have to work to improve your credit score by making on-time payments before you’ll be approved for new credit. It will likely take a long time, but it will be well worth it.

What About the Scores In Between?

A credit score between 550-669 is considered “fair” which may limit the number of financial offers you can consider.

A credit score between 740-799 is considered “very good”, while a score of 800+ is considered to be an excellent credit score, remember 850 is the highest credit score that exists. Having a credit score of 740+ if likely to qualify you for your desired financial application.

Quick Tips to Improve Your Credit Score

If your credit score is “bad” (or at least not quite “good”), there are a few steps you can take to improve your score. Let’s take a look at a few good habits.

Make Payments on Time to Improve Your Score

Remember, late payments have a negative impact on your score. This is the most important step to take toward improving your score. It’s important to make all of your payments and make them on time.

If you have failed to do so in the past, this is the first step toward improving your credit score.

Pay Down Balances to Lower Your Credit Utilization

Credit utilization is the percentage of available credit that you are using. If you have a $1,000 balance on a line of credit with a $3,000 limit, that is 30% utilization. Credit card companies typically look at this number when determining your overall risk for granting new lines of credit. The lower the better because it indicates that you are being careful with your money and not overspending at an alarming rate.

The typical recommendation from the FICO scoring model is to use less than 10% of available balances on revolving accounts for best results.

Making those payments may also reduce your credit utilization, and that should help your credit score. This is especially true if your utilization over 30%, paying down your balances can boost your score by 100 points or more.

Ask to Have Your Credit Line Increased

Increasing your credit line can help your credit score because it can lower your credit utilization.

For example, if you have a credit card with a $1,000 limit and it has a $500 balance, you have a 50% utilization on that card. But if the limit is increased to $2,000 and the balance remains at $500, you now have a 25% utilization.

You can ask your credit card issuer to increase the limit. However, limits are often set based on income, so you may have trouble getting an increase if your income hasn’t changed.

Opening new credit cards can have the same effect, but be careful not to open too many cards too quickly. This can look like risky behavior to creditors and also reduces your average credit age.

Benefits of a 740 Credit Score

Depending on who you ask, a 740 credit score is either very good or excellent. Either way, a 740 credit score will afford you several benefits.

Higher Credit Scores Qualify for Low Interest Rates

While paying with cash when you can is ideal, most of us can’t avoid financing at some point. And if you have a good credit score, you’ll be able to get a better rate on, for example, a mortgage loan, than someone with a lower score. Having a good credit score can actually save you money. 

Better Odds of Approval for Credit

Having a credit score that is too low will result in outright rejection of credit. Scores that are middle-of-the-road can be hit or miss, and excellent scores will almost always result in approval. Indeed, the higher your score, the better your odds of being approved.

Higher Credit Limits

When applying for a new credit card, your limit is based on a number of factors, including your income. However, your credit score is also a factor in your credit limit. Having a higher score means you’ll be eligible for a higher credit limit.

How to Protect Your 740 Credit Score

Want to protect your pristine credit score? Here are a few simple steps you can take to ensure it doesn’t slip.

Keep Credit Card Balances Below 30% Usage

30% is the rule of thumb. If your utilization goes above 30%, it’s more likely you will be unable to make your payments, resulting in a drop in your credit score. So if you don’t want your score to drop, be diligent about paying down your balances.

Be Mindful of Credit Checks

Credit checks will reduce your score. While the drop is temporary, it is something to keep in mind if you will be applying for a mortgage or other type of financing soon. If that is the case, and you are right around 740, you may want to wait before opening that new credit card.

Pay Bills on Time

Paying bills on time is the best way to keep your credit score healthy. Remember, credit scores show how likely you are to repay your debts. So, making those payments is the clearest sign that you are able to repay your debts and worthy of a loan or line of credit.

Where to Find Your Credit Score

There are many ways to find out your credit score. You can get it on your own by using a credit card, or you can get it with the help of a credit card company for free.

“An estimated 20% of credit reports contain errors, and fixing one could boost your score overnight.” (fool.com) Hence, it’s good to check more often if possible. Additionally, credit card issuers often offer a free FICO score. Discover offers a monthly FICO score even if you don’t have a Discover card. 

You can also get your free credit score through services like Credit Karma and TransUnion.

 Bottom Line

Having a good credit score has several benefits, from lower interest rates to higher credit limits. Those who have credit scores of 740 and up will reap some of the greatest benefits. There are many factors that determine this score; chief among them are your payment history and your credit utilization.

Not everyone starts from a good place with their credit. If that sounds like you, pay down your balances, and pay on time. As you start to exercise good habits, you can ask for credit limit increases to lower your utilization.

Be sure to keep an eye on your credit score at least once per year. There are several ways to check it more frequently; annualcreditreport.com currently allows one report every week. Keeping an eye on your credit score is important as you work to make improvements.

Other FAQs

What are the chances of being seriously delinquent?

In statistical terms, just 1% of consumers with Very Good FICO® Scores are likely to become seriously delinquent in the future.

What is a good credit score?

A 740 credit score is right on the border between “good” and “excellent” credit.

How much does it cost to know my credit score?

It is possible to check your score for free if you don’t know it. Even if you don’t have a Discover card, you can still get a monthly FICO score from Discover.