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There are some numbers that follow us around for much of our adult lives—our Social Security number, shoe size, and (for better or worse) our credit score.
The first two are permanent (barring something really bad happening), but our credit score is dynamic, subject to constant change as we navigate the financial ebbs and flows of our lives.
Good credit scores typically range from 670 – 739, with higher scores being considered either “very good” (740 – 799) or “excellent” (800+). Typically any score under 650 is considered bad.
On this page:
- Credit Score Ranges
- How to Get a Good Credit Score
- Benefits of a Good Credit Score
- Actions That Hurt Your Score
- How Credit Scores Are Calculated
Credit Score Ranges: Bad, Fair, Good, and Excellent
FICO credit scores span from 300 to 850. The following table breaks down what each number in that range is considered.
|580 – 669||Fair|
|670 – 739||Good|
|740 – 799||Very Good|
How to Get a Good Credit Score
In order to get a good credit score, there are a few things you can do. Here are a few great starting points:
- Pay bills in full and on time. If possible, always pay your bills on time and in full. If you are repaying credit card debt, try to pay off the full balance. If you are repaying student loans, try making at least the minimum payment.
- Keep your credit utilization in mind. Try to spend less than 30% of your total credit limit on your credit cards and other lines of credit. For example, if you have a credit card with a limit of $5,000, try not to let your balance exceed $1,500.
- Don’t close your accounts if possible. Since the length of your credit history is a factor in your score, keeping your accounts open will help increase the average age of all of your accounts. Closing certain accounts, such as credit cards, can reduce your total credit limit making your utilization go up.
- Limit your credit inquiries. Make sure you don’t apply for too many different forms of credit in a short period of time. Hard credit inquiries will temporarily ding your score, possibly making it harder to qualify for new loans or credit cards.
- Keep an eye on your credit report. Regularly go through your credit report to look for unauthorized inquiries and other mistakes that may be hurting your score. You should be able to dispute these with the three major credit bureaus: Experian, Equifax, and Transunion.
Benefits of a Good Credit Score
A good credit score is an important financial asset that can help you achieve your goals over time. Let’s see why.
Access to Credit
If you’ve ever had bad or fair credit, you know how frustrating it can be to get a good credit card or loan.
Consumers with good credit scores can qualify for the best rewards credit cards with considerable spending limits. Banks will usually be happy to offer you a great mortgage and car dealers will go out of their way to provide you with the best auto loans.
Having said that, you should not assume that a good credit score is all you require to access credit because other factors can also come into play.
For example, you might have earned a good score, but then lost your job. Your score will not plummet right away, yet lenders might be shy about offering you a loan if you are between jobs.
Lower Interest Rates
Not only can you access more credit by virtue of having a good score, but you’ll also be able to get better interest rates on your credit cards and loans.
While it’s true that the very best rates are reserved for those with excellent credit, the rates for consumers with good scores are not shabby. Compared to folks with fair credit, you might save hundreds or even thousands of dollars in interest charges each year, depending on how much you borrow.
>> Read More: Good Credit Personal Loans
When you have a good credit score, you have some leverage with credit card issuers and lenders. You might be able to work a better deal – lower interest rate, higher credit limit – by pointing out that other creditors are clamoring for your business. Consumers with lower credit scores won’t get very far with this tactic.
For example, if you took out a private student loan to pay for college, you may be able to refinance it with a different lender at a lower interest rate because of your improved credit score.
If you are in the market to rent an apartment or house, you’ll find that most landlords check out your credit history before offering you a lease. A good credit score requires a good credit history, which makes it much easier to pass muster and get the rental you want without wasting a lot of time trying to find a less choosy landlord.
The rental story also often applies to employment. All things being equal, it seems logical to assume that a prospective employer would prefer to hire a candidate with good credit rather than poor. If you have foreclosures or bankruptcies in your past, you might find potential employers less than enthusiastic about your resume.
Move up to a good credit rating and you might qualify for lower car insurance rates because insurers have found that folks with bad credit file more claims. You also might be able to open utility accounts or secure cell phone contracts without putting up a security deposit.
Actions That Hurt Your Credit Score
Bankruptcies, Foreclosures, & Defaults
Bankruptcies can hurt your credit score for up to 10 years. Foreclosures, collections, and defaults also cause multi-year damage to your score.
Before resorting to these measures, try to explore alternatives. For example, work with your bank to avoid foreclosure by arranging for a short sale of your home. A short sale, which might be less harmful to your credit score, is an arrangement in which the lender reduces the homeowner’s debt in exchange for a swift sale of the property.
Negotiate terms with a creditor that will allow you to avoid collection on past-due debt.
Too Much Debt
If you’re in a hole, stop digging. Don’t take out more debt than you can comfortably handle. A credit utilization ratio above 30% – 40% will hurt your score.
Too much debt is also indicated by an inability to pay on-time or to pay only the minimum amounts month after month. Payments that are overdue by 90 days or more will certainly hurt your score, but some lenders report missed payments sooner, and these can hurt too.
Too Many Inquiries
Every time you apply for credit, you generate a “hard pull,” or inquiry, on your credit report. As mentioned above, multiple pulls will be aggregated if they occur in a focused period.
However, if you are frequently applying for credit, your inquiries will mount and reduce your credit score. Note that rental and employment applications also generate hard pulls.
Moving Debt Around
An old shell game involves constantly moving debt from one account to another in order to gain some time before repaying. Credit bureaus become aware of this type of abuse and penalize your scores accordingly.
This can really kill your score until you fix it. Some credit card issuers alert you to unusual activity, but in any event, you should carefully review your monthly statement and report unrecognized charges right away.
Then check your credit reports. You can ask the credit bureaus to freeze your accounts to prevent further damage, and then work with them and the credit card issuer to have fraudulent charges removed.
There are a few firms that promise assistance should identity theft occur, but there is no company that guarantees the prevention of ID theft.
How Credit Scores Are Calculated
A credit score is a number that encapsulates your financial history. It indicates your creditworthiness in light of your record of borrowing, missed repayments, bankruptcies, foreclosures, court judgments, and many other relevant factors.
FICO scores are calculated based on the following factors:
Credit Payment History (determines 35% of your score): A potential lender or creditor wants to know how you’ve met your repayment responsibilities in the past. A good history reassures creditors, but past indiscretions, such as collections, defaults, bankruptcies, etc., will drop your score by dozens or hundreds of points. Over time, negative items lose their impact but can linger on your credit report for up to 10 years.
Amounts Owed (30%): Creditors look at your utilization ratio, which is the amount of credit you’re using divided by the credit available to you. Ratios above 30 to 40 percent are considered high and will hurt your score.
Length of Credit History (15%): Creditors can get a better handle on your creditworthiness if you have a long history.
New Credit (10%): Creditors look at how often you apply for new credit and the number of credit inquiries you’ve recently had.
Credit Mix (10%): You can achieve a higher score if you have a mix of revolving and non-revolving accounts.
Author: Jeff Gitlen