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Doing things like keeping track of your spending and paying attention to the balance on your credit cards can help you protect your credit score, if not improve your credit. And a good credit score has great benefits too. According to the FICO credit rating system, a good credit score between 700 and 749 can help you find the best personal loans and get lower interest rates than you could with a lower score.
Highlights & Key Takeaways
- A good credit score can help you qualify for loans and credit cards with competitive interest rates.
- Five main factors affect your credit score: payment history, credit usage, length of credit history, credit mix, and recent activity.
- Maintaining a good credit score is about building healthy financial habits and sticking to them.
- Be sure to check your credit score periodically - many credit card companies and banks offer their customers free access to their scores
Maintaining a Good Credit Score
Once you have attained a good credit score of about 700, you want to do what you can to keep it in the good range or higher. Here are some helpful tips for maintaining a good or excellent credit score.
- Make your payments on time
- Keep your balance-to-credit limit ratio a 30% or lower
- Keep your oldest accounts active to maintain your credit history length
- Don’t apply for new credit unless you need it - hard credit inquiries can harm your good credit score
- Check your credit report periodically - you can get a free copy of your credit report once a year from annualcreditreport.com
If you are able to maintain a good credit score with little effort, you may wish to take steps to improve your credit score. An excellent credit score of 800+ can afford many additional financial opportunities including the ability to negotiate lower rates on your credit cards, trade up for cards with better perks or bonuses, refinance your mortgage or auto loan, and much more.
Defining a Good Credit Score
According to the FICO, credit score ranges are as follows.
- Poor = 580
- Fair = 580 - 669
- Good = 670 - 739
- Very Good = 740 - 799
- Excellent = 800+
However, though these ranges are relatively consistent across different credit scoring methodologies, individuals may have different credit scores across the three main credit bureaus: Equifax, Experian, and TransUnion.
A good credit score means you can access more loan options, lower interest rates, and higher borrowing limits.
Calculating Your Credit Score
Credit scores are calculated based on five key factors, some of which hold more weight than others.
- Payment history = 35%
- Amounts you owe = 30%
- Length of your credit history = 15%
- New credit you apply for = 10%
- Type of credit you use = 10%
It takes about six months to build a credit score and a bit longer to get a good one. Building good credit requires borrowers to do the following:
- Stay on top of their payments
- Keep credit card balances at 30% or less of the credit limit
- Keep accounts open vs. closing them when you pay them off (this helps you build history)
- Avoid applying for more credit than you need
Improving Your Credit Score
There is no secret recipe for improving your credit score. If you want to improve your credit score, it takes persistence and perseverance. In particular, do the following to build your credit history and improve it, too.
- Pay your bills on time, all the time
- Keep your utilization under 30%
- Pay attention to your credit score by checking it periodically
- Avoid taking on new debt if you don’t have to
- Manage the need for too many credit lines in the same bucket - instead, strive for a healthy mix of credit - perhaps a home loan, one or two credit cards, and an auto loan
Understanding the Benefits of a Good Credit Score
A good credit score comes with a variety of benefits. A credit score above 700 can help you with the following:
- Getting a more favorable interest rate on a personal loan or mortgage
- Increased likelihood of credit card approval
- Better ability to borrow higher amounts so you can achieve your goals
- Better housing opportunities as landlords and mortgage lenders will look at your credit score to determine your ability to make your monthly payments
- Less need for a security deposit with certain purchases
- Savings on car and home insurance
- Good impression on prospective employers as some employers use credit scores to verify identity and identify signs of excessive debt or past financial mismanagement
Help Improving Your Credit Score
For some, it can feel overwhelming trying to improve your credit. However, there are various resources available to help you do just that. The following resources can help you not only improve your credit but your budgeting skills as well.
- Credit Counseling
However, if you have good credit, the chances are you don’t need to work with a credit counseling service. Credit counselors are intended to help consumers manage their money and debts, help develop a budget, and provide money management workshops. So unless you find that you are having trouble paying your bills on time or paying at least the monthly payment, it may be better to look at a better budgeting system instead.
There are many helpful budgeting apps that you can download and access on your mobile device. Some popular and reputable budgeting apps that can help you maintain a good credit score are:
Personal finance and budgeting apps are designed to help consumers limit their excess spending and save for multiple goals such as buying a home or going back to school. These apps help provide insight into your spending and can highlight if you are spending a disproportionate amount on a certain spending category.
Taking steps to maintain a good credit score or raise your score to excellent is a great strategy and one that many consumers take to heart. With a good or excellent credit score, you’ll have access to better loan terms including higher borrowing limits, lower APRs, and better repayment terms. But with good credit comes great responsibility. Never borrow more than you can handle and prioritize making monthly payments to keep your credit score healthy and working for you.