We want to qualify easily for a mortgage to buy dream home. We want to enjoy the comfort of a new car. We all want to be approved for credits cards with low interest rates.
But it in order to do so, we need good credit and that means having a good credit score. But what exactly constitutes a good credit score? Well, let’s find out.
Good Credit Score
Credit scores range between 300-850.
The two most widely credit scores are generated by FICO and VantageScore.
A good credit score is considered to be:
- FICO 670-739
- VantageScore 661-780
However, we recommend a credit score of 700 or above to guarantee the perks of having a good credit score. Credit scores are considered excellent once they are over 780.
Benefits of a Good Credit Score
Why do you need a good credit score? Having a good credit score helps you qualify and give you choices for better financial products.
Lenders use credit scores as a decision making tool to predict if you are likely to repay your loan on time. Having a customer with a good credit score makes it less likely that the lender will lose money. Lenders will want you as a customer if you have a good credit score.
It is important to know that each lender is unique and ranks financial criteria differently for their qualification process. However, having a good credit score will increase your chance for qualification. In addition, they will offer you:
- Higher loans
- Lower fees
- Lower interest rates
- Lower deposit or collateral required
Qualifying for better loans will make a huge difference to your finances.
For example, you have a $250,000 mortgage for 25 years, and your interest rate is 1% higher because of your bad credit score. You would be paying up to $62,500 more than if you had good credit.
Lower interest rates and fees can save you thousands of dollars.
With a good credit score, you will be able to shop around for financial products because of your solid credit history. Good credit scores provides you with options. You will be able to get the car that you want, the house you’ve fallen in love with, the life insurance policy you need, and even the travel points credit card that will make it easier for you to explore the globe. Having a good credit score will help you achieve any financial goal you set your mind to.
TIP: Know your credit score. Don’t assume you know that your credit score is good. Credit Sesame provides credit score for free without affecting your credit score. They give a breakdown of your accounts and give recommendations on how to raise your credit score.
If you don’t have a good credit score, you can always increase it with some diligence and patience. First, let’s find out what affects your credit score rating.
Factors that affect your credit score
There are a number of different factors that will affect your credit score. VantageScore and FICO vary on how each impacts their score, but in general the factors include:
- Payment history for loans and credit cards – your score will be affected by the number of late payments you make and the severity of the late payments.
- Credit utilization rate – the amount of total credit you are using divided by your total available. The lower the credit utilization rate, the better.
- Mix of credit accounts – loans, credit cards, lines of credit or mortgages
- Total debt
- Length of credit history
- New credit inquiries
How to raise your credit score
You can build your credit score if you are consistent and make responsible choices. When it comes to improving your credit score, it’s like a long distance run. Don’t sprint, just keep it steady and be patient. It takes 7 years for your past credit to be cleared from your report. However, small improvements can make a big difference quickly.
The simplest things you can do to improve your credit is:
- Make payments on time
- Keep your credit utilization rate under 30%
- Add a mix of loans where you can – ie: getting a line of credit from your local bank
- Keep credit accounts open for the long haul – ie: do not cancel credit cards
- Minimize new credit inquiries – hard inquiries can reduce your credit score by a few points, spread out how often you are applying for a credit card or loan
TIP: Ask your credit card provider to increase your credit limit. If you maintain a low balance, it will decrease your credit utilization rate and help raise your credit score.
