Secrets of Great Credit Scores

Why Is A Good Credit Score Important?

You probably already know that a good credit score can help you borrow money at a much lower interest rate. It can also, of course, affect your ability to borrow any money at all.  You may not know that your credit score is considered when you pay for some services, like insurance policies. A great credit score can make your life a lot easier and cheaper!

You can also guess that there is a big difference between a poor and an excellent score. But sometimes a one or two point difference, like the difference between a fair and good credit score, can make a big difference.

As we plan for retirement, we certainly want to appear as credit worthy as possible!

What Are Good Credit Scores?

Before we discuss ways to fix your own score, let us look at score ranges.

• 800+ – You should get treated like royalty by lenders. You should almost always get approved for loans. You will also get the benefit of paying the lowest possible interest rates.  Most people with this status do use credit, but are very good about managing their debt and replaying it before it is due!
• 700-799 – This range is considered very good, and it is a good target for most people. If you can keep your score in this “very good” range, you should have no problem getting credit at decent interest rates. People with good credit pay their bills on time.
• 680 – 600 – This is still considered a “good” score. People with this type of credit should probably be careful of how they manage their debt. Some small changes could boost this number up into the “very good” range. You can probably still get approved in this range, but you may pay more interest than people with higher ratings. Many people in this range do pay their bills on time, but may have “over extended” themselves a bit in the eyes of the credit bureaus.
• 620 – 679 – This is considered “fair”.  You are still not off the tracks and can probably get approved for many loans. You will start seeing higher interest rates and restrictions. You may not get approved for some loans.  People with fair credit probably pay most bills on time with few exceptions. They may be seen as “over extended” by credit bureaus.
• 580 – 620 – This falls into the “Poor” range. Some lenders may still approve you, but you will end up paying more in interest.
• 500 – 579 – A bad credit score means you will be very restricted on the types of loans you could get, and you will end up getting the worst terms. This is a red light that you need to fix things.
• Below 500 – This is considered very bad. You probably would benefit from credit counseling or other professional help with managing your credit.  Do not give up. People have turned things around before, and with discipline, you could still fix your credit!

The biggest problem with having a lower credit score is that you will end up paying more if you do need credit or other services that use these numbers to help them set prices.

How Do You Get A Great Credit Score?

Let’s take a look at that top 13 percent who have scores over 800.  We do not know exactly how credit bureaus score people, but we can look at some simple things that people with those high numbers have in common.

• The royalty tends to have a handful of credit cards These do get used, but they also get paid off early and the balances are a fraction of the maximum credit extended. Credit card balances are kept at about 30% of the limit on each account.
• The royalty does have an installment loan or two. This might be for a home or auto. Payments are always made on time or early.
• The royalty has not had one late payment in the last 7 years. There are also no foreclosures or bankruptcies showing up n a credit report.
• The royalty has old and established credit accounts. They have had credit cards for 10 years, 20 years, or more.
• There are not a lot of credit inquiries.  The royalty has old and established credit so they do not apply for credit often.

The top scorers do use credit, but they do not overuse credit. They make more than the minimum payments and pay balances off early.

A Big Tip To Improve Fair to Good Credit

I think that most people who fall into the “fair” or “good” range could improve their scores with a few simple tips. Most of these people pay bills on time, but may just pay the minimum and let balances run up close to the credit limit. If you can, try paying a bit more than the minimum every month and try to get your balances down on your accounts. Be like the kid who sits in the front row of the class and demonstrate that you are “eager” to be a great credit user.

What If You Have Bad Credit?

If your score has dropped into the poor to bad range, you probably have some other problems too. You will probably benefit from professional services. Be wary of credit card repair services. Some are legitimate, but some only benefit the people selling them.

Related articles:

1. Free Credit Reports – Good Deals?
2. Payoff Credit Card Debt
3. Post-Holiday Credit Card Balance Blues Cures
4. Credit Checks and Job Offers
5. Watch The Rising Christmas Credit Grinch!

Tags: bad credit, credit scores

This entry was posted on February 23, 2011 at 8:56 am and is filed under Finance & Insurance. You can follow any responses to this entry through the RSS 2.0 feed.