Your three-digit credit score is sometimes all that stands between you and a house, the best insurance rates, your own business or even your next job. Unfortunately, thanks to the recent financial crisis, “good credit” isn’t what it used to be. Banks and other institutions have been tightening their standards and now require higher-than-ever credit scores. Here’s how credit scores now stack up and what this may mean for you.
Understanding Your Credit Score
Although all three credit bureaus and other companies provide their version of a credit score, most financial institutions use a FICO score (from the company’s original name Fair, Isaac and Company) to determine your “creditworthiness” or get a measure of how financially responsible you are.
FICO scores range from 300 to 850 based on your payment history and current credit usage. The higher the number, the better.
People with the best credit pay less in interest and also have lower monthly payments. On a 30-year mortgage, for example, if you had an excellent FICO score of 760 versus a merely passable 620, you’d qualify for an interest rate about 0.5% lower. That might not sound like a lot, but it’s a difference of almost $100,000 over the life of a $300,000 loan at today’s rates, and your payments would be $276 less each month. For some, that could mean the difference between being able to afford a house — or not.
What Is a Good Credit Score?
What qualifies as a good credit score is fairly easy to define. According to reporting agency Experian, the tiers for credit scores are as follows:
- Very Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Exceptional: 800-850
Other lenders or reporting agencies may have slightly different ranges, but this is a good guide for how credit scores are tiered.
As shown above, a good score is technically defined as being at least 670. That doesn’t necessarily mean that a score in the good range will be good enough for what you want. To get the best possible terms on loans or other financial actions, you may actually need a score that is in the very good or exceptional range. Make sure to know what your lender or bank is looking for.
What Higher Credit Score Requirements Mean for You
This higher credit score requirement is an issue for everyone, as we now need to work harder to raise our scores for the best rates. But what if you already have what was once considered great credit and are paying your bills on time? How do you eek out those extra points?
A few basic tactics can help anyone boost his credit score:
- Check your credit score and get your free annual credit report. Dispute any errors you find there. (It’s best to do this months before you need your credit to be presentable to lenders.)
- Don’t let your credit cards go stale and risk having them get canceled, which would lower your score.
- While you’re using credit regularly, keep paying the balances off so you don’t have too much debt, especially on a single card. Spread the balances around to avoid having too high a credit utilization on any one card.
You may be just shy of the “excellent” tier, or perhaps you’re trying to climb your way up from another level; either way, if you’re in the market for a new set of keys (to a house or car) or a new job, it pays to aim for the best score possible.
The Bottom Line
A FICO credit score is a measurement of how good your credit history is. According to credit reporting agency Experian, a “good” score is any above 670, but what a “good” score is can also vary based on each individual person and what their financial goals are. Just make sure you keep tracking your credit score as needed, and do what you need to try to raise it.
Tips for Maximizing Your Credit Score
- Finding the right financial advisor that fits your needs doesn’t have to be hard, though. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- One time when a credit score is really important is when you are applying for a mortgage. If you’re thinking about buying a home and want to see what your payment could look like, use SmartAsset’s free mortgage calculator.
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