Good Credit Score:
What is a good credit score and why do you need one?
I was that college student first day on campus and what did I get handed a credit card application and some giveaways. They sell you on all the great things you can get, points, bonuses, etc. However, they educate you on the interest rate, billing cycle, payment amounts, and other pitfalls of using a credit card.
So I called my parents and asked what this credit card thing was for and should I sign up for it.
I was lucky that they educated me on how to use it correctly, pay off any balance each month, and use it for emergencies. This was my journey to building good credit for my future.
Having good credit will enable you to borrow money for things like a car, college, or even a house. Let’s talk about credit, good credit, and how to improve your credit score.
Pro Tip: The wealth put their child/children on their credit card as an authorized user to build their credit! I did this for my kids giving them a head start on their credit score. You want to be sure the primary cardholder is paying their bills on time and in good financial standing
Score Range:
A credit score ranges from 300 to 850 and is a numerical rating that measures a person’s likelihood to repay a debt. A higher credit score signals that a borrower is lower risk and more likely to make on-time payments. Credit scores are often used to help determine the likelihood someone will pay what they owe on debts such as loans, mortgages, credit cards, rent and utilities. Lenders may use credit scores to evaluate loan qualification, credit limit and interest rate.
What is a Good Score
According to Equifax, FICO® creates different types of consumer credit scores. There are “base” FICO® Scores that the company makes for lenders in multiple industries to use, as well as industry-specific credit scores for credit card issuers and auto lenders.
The base FICO® Scores range from 300 to 850, and FICO defines the “good” range as 670 to 739. FICO®‘s industry-specific credit scores have a different range—250 to 900. However, the middle categories have the same groupings and a “good” industry-specific FICO® Score is still 670 to 739.
Why Having a Good Credit Score Is Important
In general, having good credit can make achieving your financial and personal goals easier. It could be the difference between qualifying or being denied for an important loan, such as a home mortgage or car loan. And, it can directly impact how much you’ll have to pay in interest or fees if you’re approved.
Tips from CNBC:
- Make on time payments. Payment history is the most important factor of your credit score, so it’s key to always pay on time. Set up autopay or reminders to ensure timely payments.
- Pay in full. While you should always make at least your minimum payment, we recommend paying your bill in full every month to reduce your utilization rate (your total credit card balance divided by your total credit limit).
- Don’t open too many accounts at once. Each time you apply for credit, whether it’s a credit card or loan, and regardless if you’re denied or approved, an inquiry appears on your credit report. This temporarily dings your credit score about five points, though it’ll bounce back within a few months. Try to limit applications as needed and shop around with prequalification tools that don’t hurt your credit score.
How to Improve Your Credit Score:
Another common question when dealing with credit scores is “What can I do to improve my score?” There are many ways to improve your credit score. Some of these methods include:
- Cleaning up your credit report
- Paying down your balance
- Paying twice a month
- Increasing your credit limit
- Opening a new account
- Negotiating outstanding balance
- Making payments on time
Here are a few simple ways to obtain a free credit score:
- The first step is to request a free credit report from the three major credit bureaus: Equifax, Experian and TransUnion. You’re entitled to one free report from each bureau every year.
- You can also get your credit score through free online personal finance tools like Mint and CreditKarma (beware of some resources that claim to be free but ask you to input payment information, which will usually get billed after a free trial).
- Some credit card issuers offer free monthly access to your FICO score as a perk for being a cardholder.
Final Thoughts:
Using a credit card, it’s a bad thing as you can get a lot of pluses from it. Bonus points, travel miles, cash back, etc. Controlling your use, making full on time payments, and using it sparingly sets you up for a successful financial future. Credit cards can help in some cases when paid off on time.
Your Turn: Who do you think offers the best credit card?
