Want to buy a property, a new car or invest in a business idea? Whatever your dreams are, you’d better be at the top end of the credit score scale to make them come true. Here’s everything you need to know to boost your credit score!
There are many myths about credit scores. Be careful who you ask about it. For example, if you ask a lender, they may be very interested in signing you up for a personal loan. It’s better to understand the credit score scale yourself so you can make the best decisions for your individual financial situation!
The credit score scale
Basically, your credit score is a 3-digit number that shows how reliable you are at paying your bills on time. According to Equifax, a credit score will be judged within these ranges:
- 800 to 850 -> Excellent -> best chance of securing a loan
- 740 to 799 -> Very good -> good chance of being in line for additional credit
- 670 to 739 -> Good -> considered an acceptable or low-risk debtor
- 580 to 669 -> Fair -> struggling to qualify for new loans
- 300 to 579 -> Poor -> need to improve their credit score to secure a new credit line.
So, the best credit score you can get is 850, but anything between 800 and 850 is considered excellent.
Benefits of a high credit score
One big reason for maintaining a good credit score is obvious: you are more likely to get a mortgage or loan. But there is much more to consider! An excellent credit score will give you the following additional benefits to your credit options:
Save thousands with lower interest rates!
With a higher credit score, you can qualify for lower interest rates on mortgages car loans and other financings. Also, you can choose which lender you go to. You may even be able to negotiate a better rate than the one you were originally offered. A lower interest rate may seem like a small number. But if you do the math on a mortgage, you’ll see that it can save you thousands of dollars!
Lower insurance premiums
The same goes for insurance premiums. With an excellent credit score, you’ll be treated as a VIP and get better rates!
Better chances of renting a home
Many landlords will check your credit and may prefer you over other applicants if you have excellent credit.
Better credit card rewards & limits
Once you have a good credit score, you may receive offers for credit cards you thought were out of your income range. Check them carefully, but they may come with attractive interest rates, cash back rewards, higher credit limits and other perks. Many of the most generous rewards cards require excellent credit for approval.
Your bank may also offer to increase your credit card limit. If you agree, but don’t actually use it, it will help your credit score again. Think of it as a snowball effect!
How to increase credit score
Increasing your credit score means building up your credit history over time. The longer you’ve had credit, the better. However, to boost your credit score, you want a good credit history. Here’s how you can maintain a top-notch credit history.
Pay your bills on time
Even one late payment can have a significant negative impact. So, make sure you always keep an eye on your bills and credit cards!
Raise your credit limits and reduce your debt balance
It is recommended to use only 30% or less of your available credit limit. For example, if your credit card limit is $1000, only use the credit card up to $300. Then pay it off!
Maintain a credit mix
Having a mix of different credit types, like loans, credit cards, and mortgages, shows lenders you can handle different kinds of debt.
Don’t overdo it – avoid opening multiple new credit accounts in a short period of time
You might think that getting a new credit card or loan would help your credit utilization ratio, but it’s usually not worth it if you’re trying to boost your credit score. When you apply for new credit, it can trigger a “hard inquiry” that shows up on your credit report. These inquiries can actually hurt your credit score, so it’s best to hold off on new accounts for the time being.
Consider credit counseling
If you’re already in al lot of debt, consider credit counseling. Nonprofit organizations offer free or low-cost services that can help you create a budget, develop a repayment plan, and even negotiate with lenders. They can also teach you better credit habits to get back on track.