Ways to Improve a 750 Credit Score Before Borrowing
Before you apply for your next loan, it might be a good idea to get a copy of your credit report and identify areas for improvement. Remember, lenders reserve the best rates and terms on mortgages and personal loans for good credit scores, so it helps to try to boost your credit score before you borrow money. Some borrowers may even be able to leverage good credit to make money through low interest rates and high loan amounts.
While some borrowers may need to borrow money immediately, others may choose to wait so that they can build credit. Building good credit takes time, but you can generally expect to see your score increase by doing the following:
- Making consistent, on-time payments
- Keeping a low credit utilization ratio
- Applying for a secure credit card
- Increasing your credit limit
Your credit utilization ratio refers to the percentage of your credit limit that you’re currently using. If you exceed 25% to 30% of your limit, you may see your credit score go down.
Finally, it’s always important to check for errors on your credit report. Correcting these errors can give your credit score a boost by eliminating negative information. You can dispute the details with the credit bureau that supplied the report. But make sure to act fast; some errors can take time to fully disappear from your credit history.
To learn more about disputing errors on your credit report, refer to the resources supplied by the Federal Trade Commission.
Why a Good Credit Score Matters to Lenders
Think of your credit score as a kind of financial report card — a reflection of your history of making consistent, timely payments on your debts. Lenders will use your credit score to evaluate your risk as a borrower. A strong credit score indicates a high ability to repay your loan, so lenders extend the best rates and terms to those with good credit.
Conversely, if your credit score is too low, lenders will raise interest rates to protect themselves against the risk of you not repaying the loan. If your credit score is low enough, you may not qualify for certain types of loans.
The good news is that with a credit score of 750, you’ll have little to no problem qualifying for a loan. In fact, a strong credit score will give you greater freedom to compare loan options, lenders, and interest rates.
How Does Your Credit Score Affect Your Interest Rates?
Lenders also use your credit score when determining your interest rate. High interest rates protect lenders from borrowers who may default on their loans. With a very good credit score of 750, you’ll qualify for a favorable interest rate.
Average Mortgage Interest Rates by Credit Score
One of the benefits of good credit scores is that you’ll qualify for competitive interest rates. What kind of interest rates will you qualify for with a credit score of 750?
According to Experian — one of the three major consumer credit bureaus — the following are the average interest rates broken down by credit score:
- 760 to 850 credit score: 2.52%
- 700 to 759 credit score: 2.75%
- 680 to 699 credit score: 2.92%
- 660 to 679 credit score: 3.14%
- 640 to 659 credit score: 3.57%
- 620 to 639 credit score: 4.11%
If you have a credit score of 750, you’ll likely qualify for an interest rate of 2.75%. But if you can boost your credit score by another 10 or more points, you can push yourself above 760 and qualify for the lowest interest rates available. If you’re in the 600 range, it will help to boost your credit score as much as possible to lower your future interest rates.
Why Interest Rates Matter: An Example
The differences in interest rates may sound negligible, but they can have a big impact on the total amount you pay over the lifespan of your loan.
Imagine, for example, that you take out a loan for $100,000 and you have a credit score of 680 — qualifying you for an interest rate of 2.92%. If you make regular payments of $1,000 each month, you’ll pay $14,728 in interest payments alone over the lifespan of your loan. And if you only make $500 monthly payments, you’ll pay $37,186 in total interest.
Compare this to the interest you pay with a credit score of 750. With an interest rate of 2.75%, you’ll only pay between $13,708 and $33,921 over the life of your loan, depending on the size of your monthly payment. A difference of a mere fraction of a percentage point can potentially save you thousands.
That’s why it helps to maintain strong credit before you apply for a loan. Not only will you be eligible for higher loan amounts, but you’ll save money over the course of your loan repayments.
How Is Your Credit Score Calculated?
The most common type of consumer credit score is the FICO score, named for the Fair Isaac Corporation. The score itself does not come directly from the FICO organization. Instead, each of the three major credit bureaus — Experian, Equifax, and TransUnion — enter consumer data into FICO’s proprietary software to receive a final score.
The exact FICO formula has never been released to the public, adding a layer of mystery to the process. And according to the Consumer Financial Protection Bureau, there have been over 60 different credit scoring models in use since 2011.
Still, consumer credit scores remain the product of a set number of financial factors. Here are the five main factors that influence your credit score and the estimated percentage to which each factor influences the final number:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
So while payment history is a major driver of your credit score, your final score will reflect a small constellation of financial data.
Factors That Improve Credit Score
Building good credit takes time, but there are some factors that can lead to a higher credit score. For example, making regular, on-time payments can improve your score, as can a healthy credit mix. Your “credit mix” refers to the number of different account types you have (mortgages, credit cards, loans, etc.), with greater diversity usually translating into a better credit score.
Factors That Lower Credit Score
Negative information can lower your credit score. The most common risks involve late or missed payments, but even applying for a lot of credit within a short window of time can negatively impact your score.
Does Checking My Credit Lower My Score?
Each of the three major credit bureaus allows you to receive a free annual credit report. But the good news is that consumers can check their credit score as often as they like without lowering it. This is known as a “soft credit inquiry,” and it can come from your own request or from companies that send you promotional credit cards.
On the other hand, a “hard credit inquiry” can occur when you apply for a credit card or loan and a lender reviews your financial history. A hard credit inquiry can lower your score, which is why it’s best to avoid opening multiple credit cards or loans within the same period.
What Do Lenders Look for Before Lending Money?
Lenders will look at more information than your credit score alone. When you apply for a loan, lenders will ask for details about your current finances. They may consider data such as:
- Your employment history—Lenders like to see a steady employment history.
- Your income—Lenders determine if you can afford the monthly payments on the loan based on your income.
- Your current assets—For loans like mortgages, using your assets as a large down payment can help you qualify for a larger loan because it decreases the lender's risk.
- Your payment history—Provides a record of your past behavior in terms of managing and repaying debts.
- Your debt-to-income ratio—The percentage of your monthly income that goes toward paying off debts.
This means that if you’ve been maintaining good credit as well as keeping your debt to a minimum, you may qualify for a larger loan. And when you’re applying for a mortgage, the amount of savings you can use for a down payment may also influence your eligibility for a larger loan.
Final Word
How much can I borrow with a 750 credit score? Depending on your lender, you can borrow from $50,000 to well over $100,000. Having strong credit will give you access to the best rates, amounts, and terms. But even if your score falls below this mark, there are always ways to improve your credit score to become a more attractive borrower.
