What Is A Good Score?
You may have heard different information about what a good credit score is, but in general, anything over a 670 is a good score and makes you a good risk for a lender. Very good scores are those that reach 740 or higher. While you can still get credit with scores lower than these, there are a number of perks for having what is considered good credit.
Let’s talk about the perks of good credit in a bit, but first, let’s have a look at how to get your credit score into this good range. No point in talking about the benefits of the good credit club if you are not in it.
Getting Good Credit
At first glance, a credit score might seem like a mystery. However, the truth is that a credit score is simply a result of a mathematical formula. Don’t worry, there will be no math on your part today, but you need to know the major factors that go into this formula.
On Time Payments
This is the biggest factor in your credit score and for good reason. A creditor wants to know that they are going to get paid. For this reason, your payment history makes up a third of your credit score. If you have ever had a 30 or 60 day late payment, you already know how much it can affect your score.
This is a simple factor to manipulate, but if you have had problems in the past, they take time to correct. Simply pay your bills on time moving forward and you will see your score start to increase in as little as six months, although it can take years to recover from serious delinquencies.
Don’t be too concerned about making a payment one or two days late. Although you should try to make payments on or before the due date to avoid late fees, they do not count against your credit until they become 30 days late.
Available Credit
The next major factor is credit utilization. This is the amount of revolving credit (credit cards) that you have and are actively using. If you have 1000 dollars in credit and are using 200 dollars of it, you have 20 percent credit utilization, which would be good. Under 30 percent utilization is considered good and under 10 percent is considered great.
If your credit utilization is over 30 percent, you need to make a plan to get it down, because this factor makes up 30 percent of your score. The best way to do that is to concentrate on one card at a time. Pick the card with the highest interest rate and pay as much as you can on it while paying the minimums on your other cards. Once this card is paid off, move to the next highest interest rate. Repeat the process until your credit utilization is under control.
Length Of Credit History
This is the age of your credit file. Lenders want to see that you have a long history of responsible credit usage. You can be doing everything right, but if your credit file is only a year or two old, your score will suffer.
Unfortunately, there is not much that you can do to improve your length of credit, you just have to give it time. You can protect it however by being careful not to close old accounts. If your oldest credit file is a credit card, keep this card open so that you do not shorten your length of credit.
Other Factors
The 3 factors above make up the bulk of your credit score, so these should be the factors that you concentrate on. While there are other things that can affect your score, they are minimal compared to these. That said, if you want to get the most out of your credit score you should also try to have a good mix of credit types (revolving credit & loans) and keep inquiries low.
Using Your Good Credit
We could talk about the disadvantages of having bad credit, but instead why not look at the positive aspects of good credit.
With good credit, the chief benefit is that you will be able to secure low interest loans. While you might only be able to secure an auto loan with 15 percent interest with bad credit, a good credit loan could be 5 percent or lower. Obviously, this is an opportunity to save a significant amount of money.
Good credit can save you money in more ways than just interest though. It can save you money on car insurance since many insurers use bad credit as a risk factor. It can also keep companies like utility companies from requiring deposits that could be 300 dollars or more.
Last but not least, your good credit can help you get a job, or at least keep you from getting turned down for a job due to bad credit.
