Good Credit Score:
Your financial health is determined by several factors, one of which is your credit score. A credit score tells prospective lenders your creditworthiness and how responsible you are with credit. If you have a higher score, you are more likely to qualify for an additional loan of credit lines.
A good credit score can also open the door for attractive rates and terms when you borrow; however, determining whether a score is good or not is complicated. The threshold of what constitutes a good credit score depends on the lender considering your information and the type of credit you are applying for.
Additionally, there are different models of scoring credit, meaning you could end up with varying scores depending on the model the lender is using to store your information. Most lenders do not show you the exact cutoff point of their credit score to the public; however, FICO, a renowned credit scoring model, provides some useful information to guide borrowers. The common score has a scale of 300 to 850, meaning that a score ranging between 670 – 739 is considered a good score.
There are two main credit score brands competing for space in the lending business; the FICO and VantageScore. They are nearly the same, with few key differences.
Table Of Contents
- 1 The FICO Score Ranges
- 2 The VantageScore
- 3 How to Improve your credit score
- 4 What can a Good Credit Score get you?
- 5 Frequently Asked Questions About Credit Score
It is the oldest and widely used brand with a scoring range of 300 to 850. FICO also has industry-specific ranges from 250 to 900 but serves the same purpose of predicting the borrower’s risk of not paying the loan. The highest score signifies a lower risk to the lender, thus increasing the borrower’s chances of loan approval. FICO uses consumers data collected from three main credit bureaus, including Equifax, TransUnion, and Experian, to determine a customer’s creditworthiness on a scale of 300 to 850.
Average Score :- 580 – 669
Good Score : – 670 – 739
Very Good Score :- 740-799
Exceptional Score :- Above 800
The VantageScore has a similar score range and exploits data from the three credit bureaus.
Sub-prime score :- Below 600
Near-price score :- 601-680
Prime score (good credit score) :- 661-780
Super-price score :- Above 780
How to Improve your credit score
Moving from an average score to a good or high score can mean many benefits, such as easy access to finances and loans. Here are some steps step to consider to improve your score.
Review your Credit reports
It is important to establish factors working against you if you are to improve your score successfully. Checking your credit score history comes in handy in knowing what is ailing your score. Get your credit card copy from the main national credit bureaus: TransUnion, Equifax, and Experian. You could do this freely once a year on AnnualCreditReport.com and then know what is hurting or helping your score.
You could notice factors contributing to a good score, such as the record of on-time payments, a mix of various loan accounts and creditcards, low creditcard balances, minimal inquiries for new loans, and older accounts. On the other hand, high credit balances, missed or late payments, judgments, and collections are detrimental to credit score. This knowledge will help you know what actions to take to put your card score on the right trajectory.
Pay Your Bills on Time
Most lenders employ FICO credit scores which are influenced by five factors, including payment history (35%), credit usage (30%), credit accounts age (15%), credit mix (10%), and new credit inquiries (10%). This statistic shows that payment history imposes the largest weight on your score, meaning that early debt payments improve your score.
Avoid any late payment, which you can achieve by creating a filling system with due date alerts to keep track of bills. Others have also found it useful to make automatic billing from their bank account not to forget paying. Additionally, you could charge all the monthly payments to the card to avoid interest charges. This method can simplify bill payments, thus improving average credit score to highest credit score due to on-time payments.
Target 30% Credit Utilization Ratio or Less
Credit utilization is defined as the portion of your credit limit that you utilize at any given moment. It ranked second in the FICO score components in determining a score. It is important to pay your credit card balances every month fully; however, if it is challenging to do this, the general rule for a healthy score is to maintain your remaining balances at 30% or less of your total credit-limit. This limit can easily reduce to 10% or less, which is an ideal figure for the improved score.
You can also do this ratio by requesting a credit limit increase as long as your balances remain static. Many credit card companies have a provision for increasing credit limits upon request once you have updated your annual household income. This request can also be made through a phone call, and the processing is faster.
Reduce the Number of New Credit Request or Hard Inquiries
Your credit history can be subjected to two types of inquiries; soft and hard inquiries. Soft inquiries happen when you are checking your credit, checks by a financial institution in business with you, a potential employer checking your score with your permission, or a credit card issuer checking your score to establish if to send you credit offers. On the other hand, hard inquiries can adversely affect your credit score for few months to two years.
These inquiries often happen when you apply for a new credit card, auto loan, mortgage, or any other new credit. Having too many inquiries may effect your score since financial institutions will mean you need money due to financial difficulty, thus risky. If you desire to improve your score, avoid from applying for unnecessary inquiries.
Improve your Thin Credit File
People with a thin credit file do not have a substantial history of generating a credit score. Approximately 62 million Americans have a problem with the thin file; nevertheless, there are simple ways to fatten your file for a good credit score. You could use the Experian Boost to collect relevant financial data that could not be on your credit report, including utility payments and banking history.
FICO score has a free Experian version designed for individuals with limited or no credit history. Maintaining a bank account for some time, avoiding overdraft, having a savings cushion, and paying your bills through a bank account can help give the highest credit score.
Moreover, if you pay the monthly rent, RentTrack and Rental Kharma will help report your payments to the credit bureaus, thus helping your score. Remember that these rent payment reports can only influence VantageScore; thus, read the details if you are purchasing.
Maintain Old accounts Open
The longer you maintain an old credit account, the more favorable lenders will find your credit score. Do not close the old accounts you no longer use since closing a credit card while having a balance on other credit cards would be damaging your credit score by increasing the utilization ratio.
If you have charge-offs, delinquent accounts, or collection accounts, it is important to resolve them quickly before they cause further damage to the score. For instance, if your account has multiple missed or late payments, work hard to handle due amounts, making definite plans to meet your future bills on time. The prompt payments of charge-offs and collections can provide a modest core boost.
Consolidate Your Debts
If you have multiple outstanding debts, you could take advantage of a debt consolidation loan and pay them all off. This would mean that you will have only one payment with probable lower interest, allowing faster debt payment. Debt consolidation can enhance the credit utilization ratio, which in turn improves the credit.
Employ Credit Monitoring to Track Progress
You can resort to credit monitoring services to help you discern the rate of your credit score change over a period. Most of these services are free, allowing you to monitor changes in the credit report. Additionally, the monitoring services provide you with an updated monthly credit score from TransUnion, Experian, or Equifax. The monitoring services will help you avoid identity theft or fraud that could inflate your creditcard score.
What can a Good Credit Score get you?
As already mentioned, an excellent score is valuable as it can determine whether you qualify for a loan and the amount of interest you are likely to pay. In addition to borrowing money, a good credit score can help you acquire the following:
- A desirable auto loan or lease.
- An unsecured credit card with a lower interest rate or sometimes a balanced transfer card.
- A mortgage and/or favorable interest rate mortgage
- A privilege of opening a new credit to take care of crisis expenses when you lack emergency funds.
Additionally, a good score can also help you pay less for car insurance in some states, and in some instances, it can help you rent a house of landlords that screen tenants with it.
Frequently Asked Questions About Credit Score
What is a Credit Report?
A credit report is defined as a record of credit history and activity, including names of companies that you owe money, credit limits, payment history, and the outstanding loan amount. It is regarded as a financial resume that tells potential lenders the status of your financial health.
How Can I Get a Free Credit Report?
Every consumer can qualify for one free credit report from any of the main national credit bureaus once every 12 months. You can download your free copy through the annualcreditreport.com website.
What is the Difference Between a Credit Score and a Credit report?
A credit report lists your credit history and activity, while a credit score represents in value (between 300-850) what is in your report. Since there are many different credit scores, it is normal to possess more than one, but you can only have one credit report.
How will checking my Credit Report affect my Credit Score?
If you are checking your credit score, it won’t affect your score since this check falls under soft inquiry. However, frequent hard inquiry into your credit report when applying for new loans will adversely affect your score.
How often is my Credit score updated?
The values of your score can change when relevant activity is carried out and reported to your credit file. This means that your score can have different values daily depending on the activity that has taken place. Activities like payments, new credit inquiries, a decrease or increase in one’s outstanding debt, and a change in account balance can affect your overall score.
How can I register a dispute on my credit report?
If you realize an inflated figure on your credit report, it is good to contact the lender to get more details on the figure. You could also lodge a dispute with a credit reporting agency by reporting online.