720 Credit Score: Is it Good or Bad?

A 720 credit score is considered a very good indicator of financial reliability. This score, derived from credit reports, assesses an individual’s likelihood of repaying borrowed funds. Understanding what a credit score signifies provides clarity regarding financial opportunities.

Understanding Credit Score Ranges

Credit scores are calculated using FICO and VantageScore models, which range from 300 to 850. FICO scores classify 670 to 739 as “Good,” 740 to 799 as “Very Good,” and 800 and above as “Exceptional.” For VantageScore 3.0 and 4.0 models, a score of 661 to 780 is deemed “Good,” with “Excellent” starting at 781. A 720 credit score falls within the “Good” category for both major scoring models, positioning an individual favorably.

Practical Implications of a 720 Score

Possessing a 720 credit score provides access to a broad array of financial products and can lead to more favorable terms. When applying for a mortgage, a 720 FICO score is associated with competitive interest rates. For instance, a 30-year fixed VA loan might have an interest rate around 5.750% with a 720 credit score, while conventional 30-year fixed mortgages could see rates around 7.02%. A higher credit score translates to a lower interest rate, which can significantly reduce the total cost of a loan over its term.

For auto loans, a 720 credit score qualifies an individual for prime or superprime rates. New car loans for individuals with credit scores in the 661-780 range (prime) saw average APRs around 6.70%, while used car loans were around 9.06%. These rates are considerably lower than those for individuals with lower credit scores, potentially saving thousands of dollars in interest over the life of the loan. Access to diverse credit card options is also common with a 720 score, including cards offering cash back rewards and lower annual percentage rates (APRs). A 720 score opens many doors to desirable credit products.

Key Factors Influencing Your Credit Score

Credit scores are derived from several categories of information found in a credit report, with each category carrying a specific weight. Payment history is the most impactful factor, accounting for approximately 35% of a FICO score. Consistently making payments on time for all credit accounts is paramount, as even a single payment made 30 days or more late can negatively affect the score. The amount owed, also known as credit utilization, constitutes about 30% of a FICO score. This factor considers the proportion of available credit currently being used, with a lower utilization ratio (ideally under 30%) generally indicating responsible credit management.

The length of credit history contributes about 15% to a FICO score. This includes the age of the oldest account, the newest account, and the average age of all accounts, with longer histories typically being more favorable. New credit, representing about 10% of the score, involves recent applications for credit and newly opened accounts. Each hard inquiry, which occurs when a lender checks credit for an application, can slightly lower a score, though the effect usually fades within a year. Finally, the credit mix, accounting for about 10% of the score, considers the variety of credit types managed, such as installment loans and revolving credit.

Monitoring and Maintaining Your Credit Score

Regularly monitoring credit reports is a straightforward and important step in maintaining a healthy credit score. Federal law provides the right to receive one free copy of a credit report every 12 months from each of the three nationwide credit reporting companies: Equifax, Experian, and TransUnion. These reports can be accessed through AnnualCreditReport.com, the official, federally authorized website. Checking these reports for accuracy is important to identify any errors or fraudulent activity that could negatively impact a credit score.

Beyond regular review, several habits support a consistently good credit score. Making all payments on time is the most significant action. Keeping credit utilization low, ideally below 30% of available credit, demonstrates responsible management and can help maintain a strong score. Being mindful of new credit applications and avoiding opening too many accounts in a short period can also prevent unnecessary score dips. These ongoing practices help sustain a solid credit profile and preserve financial opportunities.