We’re not out of the woods yet, but with COVID-19 vaccines on the way, we’re on our way. I’m beginning to see credit loosen up a little, but the best credit cards and balance transfer deals still need a high FICO score – think 760 or higher.
You will also save money on insurance premiums, mortgages, and car loans if you have a good credit score because you’ll qualify for the best rates.
So relax and shoot for the stars with your credit score. You’ll get there if you follow these guidelines.
- Check your credit reports.
- How high do credit scores go?
- Set yourself up for success.
- Keep low credit utilization ratios.
- Pay down your debt.
Check Your Credit Reports
This is similar to credit housekeeping. You should go through your free annual credit reports and make sure there isn’t anything wrong with them. If there is, it will unnecessarily lower your credit score.
So, if you haven’t looked at your free annual credit reports from the three major credit bureaus in a long time (or ever), do so now. Examine each line to ensure that it is right. Also, keep an eye out for any new accounts that you haven’t yet developed. This is a red flag for fraud, and you should intervene as soon as possible. If you need to dispute your credit report’s mistakes, the Federal Trade Commission has steps you may take. You can report identity fraud to IdentityTheft.gov, which the Federal Trade Commission runs.
How High Do Credit Scores Go?
Scores range from 300 to 850 on the FICO scale. A FICO score of 740 to 799 is considered excellent. A perfect score is between 800 and 850. It’s rewarding to get a score of over 800, but it’s not important.
The highest credit score you’ll need is 760, which is considered excellent. When you apply for credit, you’ll get the best interest rates if your FICO score is 760 or higher.
To begin your search for a 760 FICO score, you must first determine your current credit score range. If you can’t figure out whether you have fair credit or exceptional credit these days, you aren’t trying hard enough.
Here are a few places where you can frequently obtain a free credit score:
- Your monthly credit card statement.
- Your bank where you have checking or savings accounts.
- Free credit score websites.
- Credit card issuers offer scores to everyone.
Since any score you see might not be a FICO score, even free educational scores have value. If you just have access to a VantageScore and want a FICO score, both American Express and Discover give free FICO scores to anyone who isn’t a cardholder.
If all else fails, a FICO score can be purchased for $19.95 at myFICO.com. Make sure you choose “One-time Reports” to avoid mistakenly signing up for a monthly subscription.
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Set Yourself Up for Success
To increase your chances of getting a good credit score, you’ll need a budget and a way to monitor your spending.
Fortunately, there are a plethora of free choices available to you. You may use either online software or a mobile application. Mint is an online financial management tool that I use, but there is also a Mint app if you prefer to manage your computer’s finances. Check out this list of the best free budgeting resources available, including pencil and paper if that’s what you want.
You’ll likely overspend if you don’t have a budget and don’t monitor your expenses. Consider the following scenario: How do you know when to avoid eating takeout if you don’t know how much you’ve spent on it this month?
Since your payment history accounts for 35% of your FICO score, you must pay all of your bills on time. To avoid paying late, set up reminders or automatic payments.
Setting budgetary limits on categories is another smart decision to take. When you get close to the cap, you’ll get a notification. This is a low-cost alternative to the “Stop Ahead” sign you might see on the highway.
Keep Low Credit Utilization Ratios
The amount of credit you’ve used vs. the amount of credit you have available is your credit utilization ratio. Credit usage accounts for 30% of your FICO score, so it’s a significant aspect to remember.
Consider the following scenario: You have a $5,000 credit card limit. Let’s say you have a $2,000 balance. This indicates that you have a credit usage ratio of 40% (2,000/5,000 = 40%).
If you want to improve your credit score, your utilization ratio does not surpass 10%. So, in this case, your balance during the month does not exceed $500 (500/5,000 = 10%).
Maintain a 10 percent usage ratio on all of your cards, as well as on individual cards. Both are taken into account by the FICO algorithm.
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Pay Down Your Debt
You have a 50 percent ratio if you have a $5,000 balance on a credit card with a $10,000 cap. If you cut the balance in half, the ratio would be 25%. That’s an improvement, but your score won’t reach its maximum until your balance falls below $1,000.
Paying down your debt is the only cure for this. As your ratio improves, your score will improve as well. You’ll be able to maintain a high credit score as long as you stick to your budget and keep track of your expenses.