You’ve probably noticed that your credit score can help you determine where you can get the best interest rates on a credit card, loans, and other financial transactions. So, what is a good credit score in general?
According to FICO, a good credit score ranges between 670 and 739 on a scale of 300 to 850. The data in your credit report helps in determining your credit score. The debts you owe, all the information regarding your credit history, and your repayment history are all considered factors.
A good credit score will make it easier for you to borrow money, receive better interest rates, and, in some situations, get a good house. Some landlords use credit score ratings to screen tenants.
Because your credit score is affected by the historical records in your credit report, you should pay close attention to the details. Understanding your credit report will help you decide which measures to take in improving your credit score. You can undertake several steps to help you get a good credit score.
How to Get a Good Credit Score
When you want to improve your credit score to become better, you should first look at your existing score. You will only achieve the highest credit score if you continuously put into practice habits that will help you get a better score.
Let’s look at some of the practices you can adopt to help you get and keep a good score.
Pay your bills on time
You establish a solid payment history when you consistently pay all your utility bills on time. Your payment history has the greatest impact on your credit score. Paying off your other accounts will have a positive effect as well.
Missing even one payment will harm your credit score. When you miss payments and your lenders make a report to credit bureaus, these records stay for up to seven years, despite having made the payments already. When you know you’ll miss a payment, contact your lender and let them know so they don’t file a bad report.
Set up automatic payments from your account or reminder notifications on your phone so you don’t forget to pay your bills when they’re due. If you’re having a dispute with a lender, keep up with your payments.
If you can pay your bills in full and avoid leaving specific invoices unpaid, your credit scores will significantly improve. Paying your bills in full will aid you in lowering your credit utilization ratio.
Keep your older accounts open
While you believe that closing accounts that are no longer in use will help you clean up your records, you might do more harm than good. Some people will close accounts because of the hefty fees or to prevent them from being used for fraud or theft.
Checking the status of your accounts in your credit reports is the best way before closing them. Closing too many accounts of the same type harms your credit score.
Older accounts and those with higher credit limits but lesser balances should not be closed because they help your credit score improve. If you’re concerned about having too many accounts, leading to overspending, set aside one for costs and the rest for emergencies.
You should maintain enough accounts open so their total balances do not exceed 35% of your total credit limit. Being attentive to your personal financial management will help you spend your money wisely and avoid debt.
Keep your credit balances below your credit limits
Using your personal credit cards above their limits will earn you a poor credit rating, and most lenders may consider you a high risk. Always use less than your available credit.
Nerdwallet recommends that you borrow not more than 30% of your total credit limits. For further information on that read 30% credit-utilization. This advice will help keep your credit utilization ratio low, improving your credit score. If your issuer has given you a credit card limit of $5,000, spend less than $1,500.
Another tip for keeping your utilization ratio low is to avoid paying your credit debts only at the end of the month. You can make small payments to clear your debt throughout the month. To avoid going over your credit card limit on one card, you can spread a large payment among several cards.
Talk to your credit card issuer to increase your credit card limit. You’ll have a lower credit use rate if you increase the credit limits on many accounts.
Most issuers will approve your request if you have an excellent track record of repaying your personal loans on time. However, if you have a hard time staying within your credit limits, avoid this strategy to avoid being tempted to borrow more.
Avoid applying for many credit facilities within a short period
Avoid applying for multiple personal loans with different lenders if you want to improve your credit score. Your potential lender runs a credit check on you when you apply for a loan.
Multiple credit queries may indicate that your finances are in a mess, forcing the need for credit. These inquiries lower your credit score and make it hard for lenders to approve your loan. Each query reduces your credit score by a few points when lenders make direct inquiries (hard inquiries) about your credit history from credit bureaus.
That doesn’t rule out the possibility of comparing lenders to find the best loan offer. In most cases, credit bureaus will treat queries for a single product like a mortgage, as a single inquiry. This consideration will help you not to lower your credit score when shopping for a loan.
Monitor your credit reports
It’s good to keep track of your credit reports to see if anything has changed that could damage your credit score. By checking, you might realize that a negative statement has already passed the seven years mandate and can now be removed from your report.
Every year, you are entitled to a free yearly credit report from each of the three credit bureaus. Trans Union, Equifax, and Experian offer free weekly reports until the end of 2022.
You can raise a dispute if you see any incorrect information. You might even notice that an identity thief has gained access to one of your credit accounts.
Use alternative payments
Previously, credit bureaus did not include payments for utilities or services like a cellphone to your credit report. However, Experian Boost has introduced this particular service. Within minutes you can have it set without any charge.
You can now link the account you use to make payments for those utilities or services to Experian Boost, including these payments to your Experian Credit Report. This service will help those who want to improve their credit scores.
Once you enroll, you get an updated fico score.
What does a Good Fico Score Mean?
A credit score are three numbers that usually range from 300 to 850. There are several scoring models, and some of them may use information that isn’t included in your credit report. The different scoring models may have different consumer credit scores.
Credit ratings assist lenders in determining whether or not a borrower will be able to repay their debts on time. Most lenders find you more attractive if your credit score is higher. Some lenders perceive that having a good credit score implies that you can successfully manage your personal finances.
Most credit rating systems, such as FICO, have created multiple ranges for lenders to use when establishing various scores. FICO is the most commonly used credit scoring system, and it is based on data from the three major credit bureaus in the United States: Equifax, Experian, and TransUnion.
Let’s look at the various fico score ranges and see what is considered a good fico score:
- Poor credit score: 300-580. Most lenders will not consider the borrowers in this category for a loan.
- Fair credit score: 581-670. Most lenders will have a hard time approving you for a loan with better terms if you’re in this range.
- Good credit score: 671-740. Most borrowers who fall in this range are considered low-risk borrowers by lenders.
- Excellent credit score: 741- 800. People within this range are considered savvy financial borrowers.
- Exceptional credit score: 801-850. As a borrower, you’ve proven that you can comfortably repay credit.
To keep your credit score in good standing, you need to be aware of the factors that can significantly impact it.
- Your repayment history should account for 35% of your overall credit score.
- The amounts allowed on your credit should be 30%.
- 15 percent of your credit score is based on the scope of your credit history.
- Your new credit should be 10%
- The various credit products you have should be 10% (credit mix).
Why Should You Have a High Credit Score?
Credit ratings will affect your life in numerous ways. Lenders, landlords, and employers are just a few people who use credit scores to make choices about you.
Consider the following benefits to understand how a good credit score might help you:
Credit cards with lower interest rates
Card issuers will always verify your credit history and score when you apply for a credit card. A good credit score entitles better terms, such as a cheaper APR (Annual Percentage Rate).
The (APR), is the cost of borrowing money. The rate comprises borrowing costs, such as lenders, insurance, closing costs, and interest. The rate is usually determined every year.
Other credit issuers will offer you business credit cards with rewards and benefits when you have an excellent credit score. People with good credit scores get the best rates from most credit card companies.
Stand better chances with employers
Some employers insist on conducting a background check on you before they can select you for employment. One of the checks they may perform is checking your credit ratings.
Most companies look for red flags such as bankruptcies, nonpayment, or late payment.
That’s why it’s essential to keep your credit ratings in good shape because you never know when you’ll need a new job. Check your credit reports regularly to spot any missing or incorrect information.
Get higher credit limits
A good credit score may convince your lender to increase your credit limit. Lenders are usually the ones who set credit limits.
When you use your credit card, the amount of money available decreases. After you’ve made your payments, the available amount increases again.
If you have a good credit score, you will be able to borrow more money from banks and other financial institutions. Most lenders will see you as someone who pays their debts diligently and will happily approve your credit requests.
Qualify for better housing options
Most landlords in upscale neighborhoods will ask for credit scores before renting out a home. Having a good credit score will make you have a higher chance of getting a good house.
If you opt to buy a home and a mortgage is the only option, most mortgage lenders will consider your credit score as a requirement. If you have a bad credit score, your terms may be less favorable.
Mortgage interest rates are lower for borrowers with good credit scores than those with bad credit ratings.
Better terms with insurance companies
Some life insurance companies will use your credit score to decide whether you can take a policy with them and the premium you should pay. They will monitor your credit score if the insurance policy is still active to see whether the premiums need to be raised.
Your credit score will be of use to them when deciding whether or not to renew your policy coverage.
Insurance companies need to know if you make your payments on time before deciding.
What is a High Credit Score According to Lenders?
Different lenders have different definitions of what a good credit score means. Lenders often use your credit score to assess whether or not they will lend you money and at what interest rate.
Most lenders’ credit scores are determined by the credit facility you’re looking for. The lender giving you the loan determines which credit score to use. It’s important to remember that different lenders implement different credit rating models.
For example, a person who is thought to have a good credit score by a car lender may be surprised to learn that a mortgage lender differs. Because different scoring methods provide different results, it can be tough to predict which score is considered good in advance.
Those who borrow mortgages are the ones who are most affected by a good credit score. Their credit score determines the interest rate a lender will give them. Two different people may qualify for the same amount of money, but one gets a cheaper interest rate due to a better credit score.
A good credit score will help you obtain the credit facility you desire and more affordable interest rates.
Can You Take Long to Get a Good Credit Score?
Your current credit score determines the amount of effort required to get a better credit score. It will also be determined by the specific conditions that surround your life at the time. Are you, for example, earning enough money to pay all of your bills on time and pay off your credit cards in full?
According to “How to Get a Good Credit Score” in this same article, some of the practices mentioned will take time. A person with no credit history may need to acquire secured credit cards to build a credit history.
Those with a credit history affected by bad credit may have to wait years for the negative records to be removed from their credit reports. Fortunately, there is still some progress to be seen. However, avoid adding to your bad credit history.
How to Use Secured Credit Card to Improve Bad Credit Score
Consider getting a secured credit card if you have no credit history, a bad credit score, or a poor credit rating. A secured credit card might help you build or improve your credit history. However, your lender must continuously notify the credit bureaus about your payments.
To receive a secured credit card, you must deposit money into your lender’s savings account equal to the loan amount. The deposit amount is set by the lender’s requirements and what you can afford. It’s important to know that the lender solely uses the deposit as collateral.
You must still pay the lender with separate funds when you use the card—using the card to make purchases and then repaying shows strong credit management skills. You create a credit history if you do this for a long time.
If you have been denied credit due to a poor or bad credit history, using a secured credit card might help you create a good credit history. Look for secured credit cards that offer you cash back, rewards and don’t charge annual fees. Some card issuers will graduate you with an unsecured credit card if you improve your credit score.
Instead, you can get an unsecured card if you don’t have enough money to put down on a secured card.
FAQs about Credit Score Range
Should you have a perfect credit score to qualify for a mortgage?
If you’re shopping for a mortgage, there is no such thing as an excellent credit score. What can be termed a good credit score for a mortgage?
Depending on the type of loan you seek, most lenders will determine the credit score required. The credit score requirements for each type of mortgage loan will vary.
Some mortgage loan types will demand a good credit score and a large downpayment. Like the FHA (Federal Housing Administration), others don’t require much in a downpayment and will accept you even if your credit score is poor.
Mortgage lenders don’t solely rely on your credit score to qualify your loan, but with a high credit score, your terms will be fairer.
Do you know the average credit score in the US in 2022?
Consider comparing your credit score to the average credit score in the United States if you want to know exactly where you stand. As of August 2021, the average credit score was 716. That is according to the data done by FICO.
Average credit scores are also done by income, age, race, and gender. If you want to learn more about statistics on the average credit scores in America, read further credit-score-statistics.
Is the free credit score free?
Most people are unsure if a free credit score is genuinely free.
According to federal law, you qualify for free credit reports from the three credit bureaus every 12 months. Equifax, Trans Union, and Experian.
But, as long as you request one copy during the 12 months, you can get it free.
Is it possible to get the highest credit score?
According to FICO and VantageScore, the highest credit score is 850. This score is the highest possible score in the scoring models.
Yes, this perfect credit score has been acquired by some people. In reality, in the United States, 1.2 percent of all FICO scores are 850.
Carrying less debt, never missing a payment, low credit use, and rarely opening new credit accounts are factors that have made some people reach the highest score.
Yes, credit score range vary, as we can see in the table below.
Because your credit score affects practically every area of your life, it’s a good thing to have a good credit score. Credit ratings are essential, not just when you’re asking for credit. The majority of financial experts recommend that you check your credit reports regularly.
When you have a low, bad, or no credit history, there are various steps you can take to improve your credit score to the highest possible level. In the sections above, we’ve highlighted those steps.
If you have a bad credit score, don’t be afraid to look for credit or loan options. Different lenders will use other criteria to calculate borrowers’ credit scores.