Know What Information You Need To Look At
You also need to know what information you should look at when looking at credit cards. When you are offered a credit card, you will be given a variety of information, such as the APR . Sometimes the credit card offer will offer a variety of rates, and you wont know what rate you will get until after you have been approved. You would be foolish to assume that you will get the lowest rate possible.
Another piece of information to look at is the credit limit. Your potential creditor will tell you that your card is limited up to a certain point, but again, you may not qualified for the maximum limit. When you do max out a credit card that has a low credit limit, it can harm your credit score.
Some credit card companies will also have a penalty APR. Always find out what the penalty rate is before applying for a card, what causes you to have the penalty, and how long the penalty will last.
Finally, look at any fees that come with the credit card. Examples of fees include late payment fees, cash advance fees, annual fees, and transfer fees. Again, dont apply for a credit card until after you have found out exactly what these rates are.
Keeping Your Credit Card Balance Low
The very act of having credit cards will impact your credit rating. Regardless of whether its positive or negative, it has an impact.
But something else that you want to ensure you do is keep the balance on your credit card low. The balance on your credit cards can influence over one third of your total credit score. The higher your balance is, the lower your score will be.
What you want your credit card history to show is that you have been reducing your balance on an active basis by making your minimum monthly payments on time and using your credit cards responsibly.
A good rule to follow is for your balance on your credit card to be 35% of the total limit on that card. So if you have a limit of $1,000 on your card, you want your balance to be $350 at the very highest. This holds true regardless of whether you have one credit card or multiple cards. In the long run, this will not only prevent your overall credit score from dropping, but it could also cause it to increase.
The reason why this is so important is because most lenders these days want you to stay as far away from the limit as possible in order to have the best credit scores. In fact, most experts would recommend that you never use more than fifty percent of your total available credit. If you use any more than that, or if you max out your limit, your overall credit score will drop.
Perfect Vs Excellent Credit: Whats The Difference
While 850 is considered a perfect score, its not the only score lenders view in a favorable light.
In general, a FICO score of 760 or higher is considered excellent and at this point, lenders dont make much of a distinction where loan approval or interest rates or concerned.
In short, an excellent score is just as good as a perfect score in terms of your ability to qualify for loans or get the lowest rates.
Heres an example that demonstrates how lenders view an excellent score versus a perfect one.
Lets say you want to take out a $250,000 mortgage to buy a home and you have a credit score of 785.
According to myFICOs mortgage calculator, your score would qualify you for a rate of 3.394%, which would put your monthly payments at $1,108 and cost you nearly $149,000 in interest over the life of the loan.
Now, assume that you have an 850 credit score instead. When we plugged in the numbers using the same loan amount, we were given the exact same loan terms.
The bottom line: A perfect score looks good on paper but, when it comes down to borrowing money, an excellent score will benefit you just as much.
Have A Credit History
You not only want a good record of paying your bills and credit cards on time, you also want a long history of doing so. The older your credit accounts are, the better your credit score will be. You want to have credit accounts that have been open for 10 years or more.
Length of credit history accounts for 15% of a credit score, and closing old accounts can affect your credit score, Ross says.
How To Improve Your 785 Credit Score
Knowing how to improve your credit score is a big deal. You want to ensure that your credit is the best out there so that you do not have a problem applying and being granted loans and lines of credit.
Here are some tips to help you maintain or even grow your 785 credit score a bit more than it currently is:
- Always make sure that youre making all of your monthly payments on time, every time.
- You should always pay off your debt as quickly as you can to ensure that you have a boost in your credit.
- Keep your credit utilization to 30% of the available credit that you have overall. This will ensure that you have the best credit utilization and that you are not using too much all at once.
- Dont move the debt around that you have, pay it off and it will move quicker and benefit the score even more.
- Dont keep opening up new accounts every month since this can negatively impact the score and having hard checks done can also bring the score down.
- Never open up new accounts just to increase the amount of available credit, always just use the ones you have.
- Dont own too many credit cards all at once, or other loans since this can become overwhelming and actually harm your credit more than do it any good.
- Keep a comfortable income coming in and budget for expenses going out so that your credit score can benefit from bills being paid.
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My wife and I, both, have scores north of 800. To be honest, I don’t see any extra benefits. That’s probably because we have no debt other than our mortgage and don’t pursue more debt. I imagine others with similar scores have similar attitudes. I’m going to look into the insurance part of that though.
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What Lenders Like To See
Since there are various credit scores available to lenders, make sure you know which score your lender is using so you can compare apples to apples. A score of 850 is the highest FICO score you could get. Each lender also has its own strategy, so while one lender may approve your mortgage, another may noteven when both are using the same credit score.
While there are no industry-wide standards for credit scores, the following scale from personal finance education website www.credit.org serves as a starting point for FICO scores and what each range means for getting a mortgage:
740850: Excellent credit Borrowers get easy credit approvals and the best interest rates.
670740: Good credit Borrowers are typically approved and offered good interest rates.
620670: Acceptable credit Borrowers are typically approved at higher interest rates.
580620: Subprime credit It’s possible for borrowers to get a mortgage, but not guaranteed. Terms will probably be unfavorable.
300580: Poor credit There is little to no chance of getting a mortgage. Borrowers will have to take steps to improve credit score before being approved.
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Could Inaccurate Credit Information Be Hurting Your Score
The average credit score for Americans is 703 according to Experian, one of the three major credit bureaus. Experian contributes data to compile your FICO credit score.
On the credit score range, 703 is considered a good score. But its not good enough to have a full selection of loan choices when you need to borrow.
Your good credit could use some fine-tuning if you want a higher credit score.
So lets say youve already built a good credit mix, a good payment history, and an established length of credit history as I described above.
If this is true, you may be wondering whats holding you back from achieving a different credit score?
Paying Your Bills On Time
While paying each of your bills on time may seem like the most obvious way to improve your credit score, its also the most important one. There is nothing that will harm your credit score as much as having a series of late payments on anything from car loans to mortgage loans. This is why it is extremely critical that you always make the minimum monthly payments by the determined date each month WITHOUT ANY EXCEPTIONS.
Even skipping just one mortgage payment is going to have a detrimental effect on your credit score. Sorry if that sounds cruel, but its the truth, and it should serve as your primary source of motivation for making your payment on time.
Heres an important fact to keep in the back of your mind: every time that you fail to make a monthly payment when you are required to do so, whether it be on a car or your home or anything else, it will be on your credit history and thus impact your credit score for up to seven years. Seven years. Think about that.
Now, one primary benefit to using a credit card here is that you can choose how much money you spend while using them, and then also determine how much you pay back each month, so long as that amount is equal or greater than the minimum payment you owe.
The reason why this is a benefit to you is because it allows you to budget your money accordingly and make the smartest financial decisions you can. In other words, you can avoid going into serious debt.
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Points To Keep In Mind While Clearing Your Past Dues
- No Due Certificate: After paying your outstanding dues in full to the lender, obtain a No Due Certificate. This is the proof and indication that you have closed the loan completely.
- Incorrect Closure of Credit Card: Some agencies or the credit card issuer might offer you a discount on closing the outstanding dues on your credit card. Lured by the offer, you might tend to settle for 80% or 90% of the amount to be paid. However, this is not a complete closure. The discount will not be taken into consideration by the bureaus and eventually, you remain with bad credit. Hence, make a complete closure to clear your negative status completely.
- Removing negative issues from your credit report does not mean it will improve your credit score, it can only prevent a further drop. You should have a loan or credit card account active to get an improved credit score over a period.
- Becoming credit healthy does not happen in a day. You will have to be patient as there is a certain procedure followed across all banks and credit bureaus.
- Get your credit report and look for any errors on it. By raising a dispute resolution with the lender and credit bureau, you can get the errors removed.
What Is A Good Credit Score To Buy A House
If only it were that simple. When trying to answer the question, What credit score is needed to buy a house? there is no hard-and-fast-rule. Heres what we can say: if your score is good, lets say higher than a 660, then youll probably qualify. Of course, that assumes youre buying a house you can afford and applying for a mortgage that makes sense for you. Assuming thats all true, and youre within the realm of financial reason, a 660 should be enough to get you a loan.
Anything lower than 660 and all bets are off. Thats not to say that you definitely wont qualify, but the situation will be decidedly murkier. In fact, the term subprime mortgage refers to mortgages made to borrowers with credit scores below 660 . In these cases, lenders rely on other criteria reliable source of income, solid assets to override the low credit score.
If we had to name the absolute lowest credit score to buy a house, it would likely be somewhere around a 500 FICO score. It is very rare for borrowers with that kind of credit history to receive mortgages. So, while it may be technically possible for you to get a loan with a score of, say, 470, you would probably be better off focusing your financial energy on shoring up your credit report first, and then trying to get your loan. In fact, when using SmartAsset tools to answer the question, What credit score is needed to buy a house?, we will tell anyone who has a score below 620 to wait to get a home loan.
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Dont Apply For Every Credit Card
Too many credit inquiries in a short period of time can hurt your credit score.This can be difficult to avoid during Christmas, when it seems that every department store is offering you a discount for signing up for its credit card.
Applying for new credit card accounts can account for 10% of your credit score, which isnt a huge number, but it can be enough to push you into the 800+ credit score club.
Holly Wolf, who with her husband has a credit score in the 800 range and is a chief marketing officer at Conestoga Bank, says she doesnt open a lot of credit cards and often closes cards she may have opened to get a store discount.
Honestly, this isnt a lifestyle to which most folks aspire, Wolf says. The need to have a nice car a big house and all the accouterments of prosperity over having a high credit score. Living debt free or with as little debt as possible has enabled us to save for retirement, get the best rates on loans, and be prepared for unexpected expenses when they arise.
How To Go From Good To Great
To borrow from Leo Tolstoy, all great credit scores are alike, but all bad credit scores are bad in their own way. That is, ideal credit scores are built on a similar set of healthy financial habits, but your scores can be damaged by any number of factors. There are many different issues that can hurt your credit, such as:
Late or missed payments. Too many open credit accounts. High credit card balances. High balances on loans. Too many credit applications.
The first step toward improving your credit health is avoiding getting trapped in the highs and lows of managing your credit.
Heather Battison, vice president of TransUnion Canada explains how consistency is key: The most important factor for building and maintaining your scores is to pay your bills on time and in full each month. This activity demonstrates your ability to responsibly manage credit and can positively impact your credit scores.
Its also key to remember that your payment history isnt just about paying your credit card bill. It also includes things like your cellphone bill, says Trevor Gillis, associate vice president of account management at TD Credit Cards.
Gillis says building good credit scores is based on using your credit card responsibly, which means making at least the required monthly minimum payment , making your payments by the payment due date and keeping your credit card utilization low.
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A 785 Credit Score Is Often Considered Very Good Or Even Excellent
With excellent credit, your credit scores become more of a bridge and less of a roadblock a high score can help you qualify for premium rewards credit cards, auto loans and mortgages with the best terms.
Having excellent credit scores doesnt guarantee approval, but it certainly helps. Thats because your excellent scores make you more attractive to lenders, who may see it as an indicator that you pose less of a risk. And the more they trust you to repay the money you borrow, the less they need to hedge their bets with things like down payments, security deposits and low credit limits.
Of course, your arent the only factor lenders look at. They also consider details like your employment status and income.
Its also important to keep in mind that you might have dozens of different credit scores. And it may not be clear which score a particular lender looks at, or how high that score needs to be in order to grant you approval at the best terms.
But in general, your excellent credit scores will impress them.
Take a look at how your credit scores stack up against the scores of people from different generations.
|Percentage of generation with 750850 credit scores
Ranges identified based on 2021 Credit Karma data.