What counts as a good credit score and how do I improve mine?
I'm 25 and trying to get a handle on my finances, starting with my credit score. I see all kinds of advice about how to maximize your credit score online, but a lot of it's confusing or even seems contradictory. I'm wondering, what counts as a good score (mine is about 700 right now)? What does a "good score" even mean/what does it get you? How can you improve your score? What should my score be? I'm not planning to buy a house or anything any time soon, but what should I be aiming for when it comes time to do that?
Sorry for the overload of questions, I just feel overwhelmed! When it comes to this stuff, it's like I don't even know what I don't even know. Any and all help appreciated!
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Sorry for the overload of questions, I just feel overwhelmed! When it comes to this stuff, it's like I don't even know what I don't even know. Any and all help appreciated!
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Credit cards are 30% of the credit score. I don't know if you have a credit card, but one of thing that can affect your score is how you manage credit card debt. A lot of people are overextended, and so even when they pay their credit cards on time, and let's say have perfect payment history, but they're charging more than 50% of the credit limit, that destroys your credit, even if you pay perfectly and never miss a payment. It's important that people just make sure they're aware of how to pay the credit cards so the high balance doesn't report. And remember that payment history is 35% of our credit score. So one late payment can affect somebody's credit score 50 to 100 points negatively, just one day late pay. Just being very conscious of what's on your report and making sure that you're managing it. You want to keep the balances under 10% of the limit. That's where you're going to see a drastic improvement in your credit scores and is the fastest way to maximize your scores
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A good credit score is between 670 and 740. Here's the breakdown for a credit score that ranges from 300 to 850:
The better your credit score is, the better rate you can get on lines of credit and loans, including a mortgage if you decide to buy property.
If you want to improve your score, make payments on time, keep your balances low and your debt-to-credit ratio under 30%, build the length of your credit history, and have a mix of credit types (for example, credit cards as well as loans).
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- 800 to 850: Excellent
- 740 to 799: Very Good
- 670 to 739: Good
- 580 to 669: Fair
- 300 to 579: Poor
The better your credit score is, the better rate you can get on lines of credit and loans, including a mortgage if you decide to buy property.
If you want to improve your score, make payments on time, keep your balances low and your debt-to-credit ratio under 30%, build the length of your credit history, and have a mix of credit types (for example, credit cards as well as loans).
Just FYI, you should check your credit score every year to make sure there’s nothing incorrect on it. If there is, you can dispute it with the credit agencies. The three credit agencies are Equifax, Experian and TransUnion. You can pull your credit score directly from them once a year for free. Good luck, bud!
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Your credit score is most important when it comes to getting approved for a home loan, so don’t sweat it if you aren’t super happy with your score and you aren’t actively in the market for a new house. To put it in plain English, your credit score depicts how safe it is for banks to lend money to you. The higher the score, the more likely you are to get good loan offers at a reasonable interest rate. You’re also more likely to just be approved for a loan in general. 700 is a good score. You should be proud of it, especially since your credit history is probably very short. 850 is technically the highest score, but basically nobody has perfect credit, so anything over 800 is considered functionally pristine. Anything in the 650 range is considered average, while anything below 580 is pretty poor. You’re unlikely to get any loan offers without losing the shirt off your back when your credit score is below 500 or so. Like everyone else mentioned, just stay out of debt and pay your bills on time and you’re going to be just fine.
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I’ve heard of that Chime card! I think my brother had a similar card with Chase. It really helped him build credit after he went bankrupt. But yeah, to add to the convo, I think people make credit scores out to be a much bigger deal than they are. I think it’s much more important to have good spending and saving habits. A great credit score doesn’t matter if you’re terrible at saving money, for example. In terms of how credit scores work, one of the things that really tripped me up when I was younger was the hard vs. soft pull thing. Hard pulls will knock your credit score down a few points, especially if you get a bunch of them. Hard pulls can happen for things like loan applications, credit card applications, background checks, rental applications, and stuff like that. Always ask if someone is going to perform a hard pull whenever you apply for something like that!
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Nobody has mentioned it yet, but if you want to improve your credit but you aren’t exactly the most responsible credit card user, there are “credit building” credit cards that function like debit cards. In other words, they don’t let you “overdraft” whatever limit you set. This way, you can build your credit without actually putting yourself in a position where you can go into debt. I know Chime has a really good one for people with no extensive credit history, but there are a bunch of them out there.
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A ”good” credit score is considered to be around 670-740, so you’re in a pretty good position at 25 if you’re at 700. Your score will improve over time so long as two things happen: you pay your bills and debts on time, and you don’t allow any debts you have to accrue a lot of interest or go into collections.
If you aren’t planning on buying a house or financing a car any time soon, your credit score isn’t actually that important. The thing is that it takes a lot of time for your credit score to move in one direction or another, so it’s one of those things you want to stay on top of to make your future life easier.
If you do want to improve your credit score, people will tell you to use a credit card. If you do go this route, it’s extremely important you do not carry debt over from month to month. This will destroy your credit and you’ll just end up in debt. If you aren’t in a rush, I’d recommend just continuing to pay your bills on time and avoid debt. You’re doing really well for your age, so just keep it up!
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If you aren’t planning on buying a house or financing a car any time soon, your credit score isn’t actually that important. The thing is that it takes a lot of time for your credit score to move in one direction or another, so it’s one of those things you want to stay on top of to make your future life easier.
If you do want to improve your credit score, people will tell you to use a credit card. If you do go this route, it’s extremely important you do not carry debt over from month to month. This will destroy your credit and you’ll just end up in debt. If you aren’t in a rush, I’d recommend just continuing to pay your bills on time and avoid debt. You’re doing really well for your age, so just keep it up!
I'd recommend setting up autopay for your credit card payments! This made it so much easier for me to manage my credit cards and get my credit score up. I also set reminders for myself to periodically check the bank account hooked up to my credit card so I can make sure there's always enough money in it.
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Reader Tips from How to Check Your Credit Score
Don't ever think you're too young to start preparing your financial stability. Life comes at you fast. Start thinking about your credit and savings early and often. It's harder to fall into good financial habits the older you get, trust me. That said, it's never too late to become financially aware. I didn't really until I was in my 30s, and it really helped get me to a place of financial stability.
Credit cards are a good way to boost your credit score, but it's tricky because you need to use them and pay them off quickly enough to boost your score, but don't use them TOO much or get behind on payments or it'll tank your score... It's all a dumb game with complicated, random rules, but if you master it you can succeed.
Reader Tips from How to Pay Off Credit Card Debt
See if you can find an extra job for just a few hours a week. It can feel like it's not worth it, but if you work just one shift at a cafe or something and throw all your earnings into your credit card debt, you can pay it off in no time.
If you have more then two credit cards, pay off one first then the other. Trying to do both at once will make them both take longer to pay off with more interest.
Reader Tips from How to Manage Your Money Wisely
To manage money wisely, create a budget to track income and expenses, set clear financial goals, and prioritize needs over wants. Automate savings by setting up regular transfers to your savings account, and regularly review and adjust your budget as needed. Additionally, build an emergency fund to prepare for unexpected expenses. These steps will help you gain control over your finances and work towards your financial objectives.
Don't restrict yourself too much financially, or you'll probably end up giving in and overspending. I try to set aside about 30% of my monthly income for "fun money," and the rest goes to my monthly expenses and savings.
