What Is a 720 Credit Score? Is It Good or Bad?

A credit score numerically represents an individual’s creditworthiness, influencing their ability to secure loans, rent property, and obtain insurance. It is a key factor in personal finance.

The Landscape of Credit Scores

Lenders use credit scores to evaluate the risk of lending money to consumers. A score forecasts the likelihood of an individual repaying debts based on past financial behavior. Scores range from 300 to 850, with higher numbers indicating lower risk. A 720 score is considered “very good” to “excellent,” reflecting responsible financial management.

A 720 score indicates a reliable borrower with a low probability of defaulting. This favorable score often leads to better loan terms, including lower interest rates and more flexible repayment options. It also enhances eligibility for a broader array of financial products and services.

Components of a Credit Score

Payment history accounts for 35% of a credit score. This assesses timely payments on all credit accounts, including credit cards, loans, and mortgages. Consistent on-time payments demonstrate financial reliability and contribute to a strong score. Missed or late payments can substantially lower a score.

Credit utilization makes up 30% of a score, measuring the amount of credit used compared to total available credit. For example, a $3,000 balance on a $10,000 limit card is 30% utilization. Lower utilization rates, below 30%, indicate responsible credit management. Length of credit history, 15% of the score, considers how long accounts have been open and active.

Credit mix accounts for 10% of the score, including revolving credit (credit cards) and installment loans (mortgages, auto loans). Managing different credit products responsibly can positively impact a score. New credit, also 10% of the score, considers recent credit inquiries and newly opened accounts. Numerous new credit applications in a short period can suggest higher risk and temporarily lower a score.

Building and Sustaining a 720 Score

To positively impact payment history, consistently pay all bills by their due dates. This includes credit card bills, loan payments, utilities, and other recurring expenses reported to credit bureaus. Setting up automatic payments or reminders can help ensure timely fulfillment of financial obligations.

Managing credit utilization involves keeping credit card balances low relative to credit limits. A guideline is to use less than 30% of available credit on each card and across all accounts. For instance, with a $15,000 total credit limit, aim to keep balances below $4,500. Paying down balances multiple times within a billing cycle can also reduce reported utilization.

A long credit history involves keeping older credit accounts open and active, even if not frequently used. These established accounts demonstrate a consistent track record of responsible credit management. Regularly using and promptly paying off a small balance on an old credit card helps maintain its active status. Diversifying credit types can also be beneficial.

Adding a mix of credit types, like a credit card alongside a personal loan or mortgage, shows responsible debt handling. Only open new accounts when genuinely needed and when confident in managing the additional debt. Apply for new loans or credit cards sparingly to avoid numerous hard inquiries on a credit report within a short timeframe. Each hard inquiry can cause a slight, temporary dip in a credit score.

Variations in Credit Scoring Models

No single “credit score” exists; lenders use various scoring models. FICO Score and VantageScore are the most widely used, each employing proprietary algorithms. While a 720 score is strong across both models, minor differences in calculation methodologies can result in slightly varying scores. For example, some models might weigh factors like medical collections differently.

Lenders choose the scoring model that best suits their lending criteria, so the score an individual sees may not be the exact score a lender uses. This highlights the benefit of understanding the general range and what a 720 signifies across major models, rather than fixating on a precise number. Individuals can access their credit scores through several avenues. Many credit card companies and banks provide free access to a FICO Score or VantageScore as a customer benefit.

Individuals are entitled to a free copy of their credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—once every 12 months. While these reports do not always include a score, they provide the underlying data from which scores are calculated. Various third-party financial websites and credit monitoring services also offer free access to credit scores, often based on common models.