Are you still wondering what the best credit score is? When you were in school, you got an assessment record to let your parents know how well you were doing. Well, a credit score is a financial report card to inform banks and lenders how well you’re doing.
The highest credit score for any given credit scoring model is typically somewhere around 850, and if you have ever hit this mark, even for a moment, count yourself as a rare financial creature.
Is it even possible to hit this level of perfection in the realm of creditworthiness? Yes, some people have done it.2 Is attaining the highest credit score a worthwhile goal? Probably not.
What is a Credit Score?
It’s a number that credit reference agencies use to gauge how creditworthy a lender may find you. It’s based on a number of factors, including your credit history and whether you’re on the electoral register. Your score can go up or down according to your circumstances.
Why Your Credit Score Matters
Lenders and other financial institutions use credit scores to get a snapshot of your overall credit health. While they’ll typically consider more than just your credit score in a lending decision, that three-digit number is an important factor because it gives them a quick understanding of how likely you are to repay your debts on time.
Also, some auto and homeowners insurance companies use what’s called a credit-based insurance score to help determine your monthly rates, although this isn’t allowed in every state.
Most credit scoring systems use a scale that ranges from 300 to 850. There are, however, some credit scoring models that go up to 900 or 950, including industry-specific scores used by certain institutions.
Working your way up to an 850 credit score might sound appealing, but it isn’t necessary. Simply having a credit score in the upper 700s or low 800s indicates that you’re a responsible credit user, and you’ll likely qualify for the same terms that you would with a perfect credit score.
So instead of shooting for a specific score, focus on the credit score ranges. Here are the ranges for one of the most common scoring models, the FICO® Score*:
If you want to improve your credit score for buying a home or just beating your friend’s score, all you have to do is follow these three easy steps, let time do its thing, and you’ll succeed.
Get Your Score
How can you improve your score if you don’t know what it is? It’s like losing weight when you don’t know how much you weigh — how will you know if you’re making any progress?
If you have no idea what you’re credit score is, use a site like Credit Karma, Credit Sesame, or Mint to get a free, simulated score. It won’t be 100% accurate – but, then, no credit scores can be 100% accurate, because credit scores vary from lender to lender. But it will be in the ballpark and a good place to start.
This is the first step. Once you find out your score, you can determine if it even needs to be improved upon. Hopefully, if your score is above 751, you won’t have to do much but continue what you’re already doing.
Set Up Automatic Bill Pay
This is arguably the most crucial mistake people make. If you don’t pay your bills on time, it’s going to affect your score in a very big way. I know we’re all human and not everyone is perfect, but there are ways to protect yourself against…well, yourself.
Even if you’re the best and most punctual bill payer, you never know what might happen in the future. This is why it’s a good idea to make all your bill payments automatic.
I suggest you set up automatic bill pay with your checking account to automatically pay at least the minimum payments on all your bills. By doing this, you will never miss a payment. And don’t worry if you accidentally overpay, because you can get your money back upon request.
Increase Your Credit
The debt-to-credit ratio is the amount of available credit versus used credit. Lowering your credit utilization will increase your credit score.
The goal here is to keep it under 20% at all times. Also, the more credit you have, the higher your score.
The most important thing you can do here is to keep your debt low by setting your limits. Right now I have a credit card that has a $3,000 credit limit. However, I imagine that I can only spend $600 a month (and immediately pay it off).
Some credit card companies will even let you set alerts to notify you when you go over a certain amount that you set. If 20% is too low for you, you can increase the amount of credit you have available.
There are two ways to do this:
Call your credit card company and ask to increase your credit limit.
Open another credit card.
As a talking head for “making things easy,” I recommend you try the first way, first. It’s an easy phone call to make, and it will improve your credit score.
What Are the Benefits of Having a High Credit Score?
There are several reasons to work toward a high credit score, and all of them involve saving money:
Score Lower Rates on Car Loans:
Unless you have enough cash to buy a car outright, you’ll likely need to get an auto loan. Having a good credit score can help you secure a loan with the best possible terms.
Consumers with the highest credit scores qualify for an average interest rate of 4.2% on a new car, compared with 14.97% for people with the lowest credit scores, according to Experian data.
Get Credit Cards With Great Rewards:
You can qualify for a credit card with just about any type of credit. But the best credit cards in terms of rewards and benefits typically require good to exceptional credit scores.
Qualify For The Lowest Rate On a Mortgage:
Given the amount of money involved, your mortgage is the loan you’ll want to get the lowest interest rate possible on. It’s worth putting in the extra work to shop around and negotiate, as even a small percentage increase can cost you tens of thousands of dollars over the life of your loan.
Getting your credit ready for a mortgage is an essential step in the home buying process.
Negotiate Lower Interest Rates On Your Credit Cards:
If you completely pay off your credit card balance each month, your credit card APR is irrelevant. But if you’re carrying a balance, having a great credit score could help your negotiations with your lender to lower your interest rate. Getting a lower interest rate could save you a lot of money.
Get Better Insurance Rates:
If you’re shopping around for homeowners or auto insurance rates, having a great credit score may help you qualify for a lower monthly premium—except in certain states where the practice is banned.
Refinance Your Loans to Save Money:
If you’ve improved your credit score since you opened one of your loan accounts, you may be able to refinance it at a lower rate and save money.
Ways To Improve Your Credit Score
If you’re looking to improve your score, there are some basics that you can work on. Those are:
Pay your bills on time
Keep your credit card balances low
Make an effort to keep your oldest accounts open
Manage your available credit vs. debt ratio
Don’t have too many inquiries for new credit
Keep an eye on your credit report
If you put some of these strategies into play, it’s not difficult to move from one credit ranking to another.
1. What is a credit score?
A credit score is a number that summarizes the historical credit information on a credit report. The number reflects the likelihood that you will become delinquent on a loan or a credit obligation in the future.
2. Why don’t I have a credit score?
Credit scoring models cannot generate a score without enough credit information. If you have little or no credit history, you probably will not have a credit score available.
3. How often do credit scores change?
Your credit score changes as your credit report changes. Therefore, it can change often since new information is added to your credit report all the time.
4. What is the credit score range?
There are many different credit scores with differing ranges. As a result, it is possible for two different scores to represent the same level of lending risk. When you request a credit score from Experian, you will receive not only a score, but also an explanation of what the number represents in terms of how lenders will view your creditworthiness.
5. Who calculates credit scores?
Credit scores may come from several sources. Lenders may request that a credit score be provided along with your credit report. Credit reporting agencies provide the service of applying the credit scores from a number of credit scores developers.
Although it’s nice to have a perfect or near-perfect score, it means very little, other than having a badge of honor that less than 1% of the population could achieve. Once your score gets and remains above 780, lenders see you as a low credit risk.
You’ll get the best interest rates and are pretty much guaranteed a “yes” to any loan you apply for that appropriately fits your income level. And if you’re curious, here are the best places to get your credit score or report for free.
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