What Is Considered an Excellent Credit Score & How to Get One

What Is Considered an Excellent Credit Score & How to Get One
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If you want to borrow money, your credit score will be a factor. Determined by the credit bureaus based on reports from lenders, your score directly impacts your ability to apply for a credit card, get a mortgage and take out a loan to buy a car, among other activities. You can improve your credit score by pulling your credit report and cleaning up inaccurate entries, as well as making sure you pay your bills on time and keep your debt-to-available-credit ratio low.

What Is an Excellent Score?

Before you shoot for an excellent credit score, it can help to know what that number actually is. A “perfect” credit score is 850, but only 1.2 percent of all U.S. FICO scores meet that criteria, according to Experian. The good news is, you don’t have to have a FICO score of 850 to be seen as “excellent” by lenders.

When considering your application for credit, most lenders will look for a credit score of 760 or better. Experian says a score of 800 to 850 is excellent, while a score of 740 to 799 is very good. Those who fall between 670 and 739 have good credit, 580 to 669 is fair credit and 300 to 579 is very poor.

Good Vs. Excellent Credit Score

If your credit falls in the “good or “very good” classification, you aren’t alone. Most credit scores fall between 600 and 750, putting the majority of the population in either the “fair” or “good” categories. Those who have very good credit are likely to see similar benefits to what you’d get with excellent credit, but as you drop lower in the “good” range, you may want to consider boosting things.

But that’s not to say a credit score of 670 to 700 is a bad thing. Good credit indicates you’re a responsible borrower who pays your bills on time. A lender may look closer at your credit history. That may also happen with an excellent or very good score, too, of course, depending on the lender’s policies.

Benefits of Excellent Credit

You’ve probably noticed early on that your credit score plays a role in what you can do financially. The first time someone is denied credit, that becomes clear. Even if you are approved, your score will affect the interest rates you’re offered. You may also find your credit limit for items like credit cards is low at first, increasing as a stronger credit history is established.

In addition to credit card applications, your credit score will affect your big lifestyle moves. If you’re buying a car or going to college, you might need to take out a loan that you can pay back later. You’ll also find that you get better rates on your renters and homeowners insurance with a higher credit score.

But perhaps the biggest time your credit score will come into play is when you buy a house. While your score isn’t the only factor, lenders will look at your score when determining whether to approve you for a home loan. ​Lenders will want to know the amount of credit you have, along with how much of your available credit you’re using, as well as your debt-to-income ratio, which should be 43 percent at maximum, according to Fidelity.com.

Checking Your Credit Score

Wherever you are in your financial journey, it’s beneficial to keep an eye on your credit score. All three credit bureaus have set up a central website that makes it easy to get the one free credit report you’re entitled to every year. You can get that report by visiting AnnualCreditReport.com.

But your credit report doesn’t give you your score. It merely catalogs your payment and length of credit history. You may be able to get your credit score through your bank or credit card issuer. If not, Experian offers it for free if you sign up for an account. You can even sign up for paid services that will alert you when your credit score changes.

Factors Affecting Your Credit Score

A good credit score is built over time, starting from the day you first begin paying bills. Knowing exactly what activity affects your credit score can help you work toward improving the number. Here are five factors that can raise or lower your score.

  • Payment History – Everyone misses a bill from time to time. A few late payments won’t automatically damage your score, according to myFICO, but a long history of paying most of your bills on time will help.
  • Credit UtilizationCredit utilization is a percentage of your available revolving credit that you’re using. If your total credit across all credit cards is $10,000 but you only have a total balance of $1,000, your credit utilization is only 10 percent. If you’re looking to improve your credit score, keep your balances as low as possible.
  • Age of Credit Accounts – If you’re a new borrower, you won’t have a credit history. But having years of taking loans and paying bills on time boosts lender confidence. This part of your credit score factors in the age of your oldest credit accounts, as well as the average age of all your credit accounts.
  • Other Factors – There are some smaller factors that can bounce your score up or down. Those include parking tickets, unpaid utility bills, medical bills that have been sent to collections and delinquent child support. If you’ve recently paid off a loan, this could affect your credit mix or credit utilization percentage and push your score downward.
  • Credit Mix – This part of your credit score looks at the variety in the types of credit you have. Ideally, you’ll have a mixture of revolving credit, like credit cards, and installment credit, like mortgages and car loans. Having this variety boosts lender confidence that you can handle multiple credit types.

Fixing Credit Report Errors

The quickest, easiest way to clean up your credit report and, as a result, potentially increase your credit score, is to fix errors. One study from the Federal Trade Commission found that one in five people have an error on at least one of their credit reports. Once you have your free credit report in hand, go over it carefully and track down documentation for any errors you find.

After gathering your documentation, contact the credit bureau in writing to dispute entries on your credit report. You’ll find instructions on disputing errors here:

  • Equifax – You can dispute information on your Equifax report on the Equifax website.
  • Experian – Experian lets you dispute information through its online dispute center, by phone or by mail. Contact information is available on the Experian website.
  • Transunion – Transunion also lets you start your dispute process on its website.

Keeping Your Creditors Happy

Credit scoring models prioritize your payment history when determining your overall score. Future lenders that pull your full report will also take note of entries that demonstrate you paid late or not at all. One of the best things you can do is set up autopay for all your bills to ensure you don’t miss a bill when life gets hectic.

If there’s a time when you can’t pay a bill on time, it’s best to contact creditors like card issuers and lenders as quickly as possible. They’ll often work with you for a reduced or delayed payment if you have a good reason. This could help protect your score until you can get back on your feet.

Reducing Your Credit Utilization

Credit cards can be handy for getting you through until payday or for simply earning rewards or cashback on your everyday purchases. But one key thing you can do to strengthen your credit score is to keep that minimum balance as low as possible. If you can, pay off your balance on a weekly basis or reduce your use of your card, even if it means giving up some rewards or cashback.

Another important thing you can do, especially if you’re gearing up to apply for a big loan like a mortgage, is to avoid applying for new credit. If you do apply, make sure your application will only initiate what’s known as a soft inquiry, which just checks your score without impacting it. Once you’ve been preapproved, then many creditors will run a hard inquiry, and that’s where your credit score could drop.

Avoid Collections and Bankruptcies

One top thing leading to a bad credit score is activity that sticks around for a while. If you have a debt that goes to collections, it will stay on your report for seven years, even if you pay it off as soon as you get that call. That said, paying off the collection will lessen the impact on your credit score during that time, so it is usually a good idea to go ahead and pay it.

Similarly, bankruptcies will stay on your credit report, as well. If it’s a Chapter 13 bankruptcy, you’ll see it on there for only seven years, but a Chapter 7 bankruptcy will stay on your report for a full 10 years, primarily because you aren’t required to ever repay the debt in a Chapter 7 filing. If you do find yourself in a position where you have to file for bankruptcy, make sure you pull your report after the designated time period has passed to verify that the bankruptcy did, indeed, come off your report.

Improve Your Financial Standing

Many of the tips to improve your credit score don’t take into account that you might have trouble paying your bills. If you are having money difficulties, tips like “pay your bills on time” and “keep your credit card balances low” feel useless.

There are a few things you can do, even when bills seem higher than your income, to start to feel as though you’re in control of things. Some or all of these personal finance tips may give you a hand as you start to set a budget.

  • Take a second job. Although this isn’t always an option, if you can squeeze in a side hustle, you may find that you’re able to put the earnings toward paying off bills or saving some money for life’s little emergencies.
  • Look at your expenditures. Are there areas where you can cut back on a daily or weekly basis to get ahead?
  • Set a budget. Don’t force yourself to stick to it strictly for the first few months. Use this as a learning period and eventually, set a budget that’s more realistic for your day-to-day spending habits.
  • Find ways to cut costs. Look at expenses like subscriptions and utilities and strive to cut back a little. Even a small monthly savings can add up.

Building a credit reputation takes time. Don’t assume you can go from no credit history at all to excellent credit overnight. You’ll need to make a plan to pay bills on time each month and keep your credit utilization low and monitor your score. As you see it improve, you’ll feel much more empowered to keep going.