The highest possible credit score is 850. A lender typically considers your three or more credit scores before making a lending decision. So if you have one credit score of 800, another of 830, and yet another of 770, lenders will factor all this information to create an average of 785. It doesn’t matter which score they consider the most important because the data is combined to create a final number.
Lenders typically want your credit scores to be in at least the mid-700s before approving you for a loan or line of credit. It’s best if your score is 780 or above since this will give you the most access to the best interest rates on your loan.
The credit reporting agencies (or bureaus) aren’t allowed to share specific information. Still, all three will provide an overall rating that represents your ability (or inability) to repay loans and manage credit. Lenders know that the scores they receive are simply a snapshot of your credit history.
If you have a mix of good and bad credit, lenders may still be willing to extend a line of credit if they feel there is a substantial difference between your good and bad scores. For example, one creditor may look at a score of 745 as an indicator that you’re not a high-risk borrower, while another may see the same score and conclude that you’re a very high-risk client.
The higher your credit score, the better for your wallet! Those with excellent credit get the best rates on mortgages, car loans, and even business financing. They also enjoy rewards cards; premium hotel stays, and no deposit movie tickets (such as Cineworld Unlimited). The reason is that they are seen as the least risky by financial institutions.
A credit score of 780 or above might sound lofty, but it’s possible with a bit of work and time. Note: The following advice won’t apply to people who have been through bankruptcy or foreclosure within the past few years – these situations can devastate a credit score.
Several factors influence your credit score, some of which you have direct control over and others you don’t. Lenders use a “risk-based” system to calculate their creditworthiness based on the positive and negative things listed in their reports. This means the strength of your overall financial situation is represented by the mix of information in your credit report.
You can also do several things to boost your credit score if it's not in the upper tier. Here are some of them:
– Pay on time, every time. If you’re behind on payments, get caught up ASAP. Delinquent payments will continue showing up for seven years after the original due date, and payments 30 days late can show up for ten years. Late payments that are 90 days or more may stay on your report for 7-9 years from the date of delinquency.
– Reduce your debt load. Try to keep your total debt (credit cards, car loans, and other installment plans) to less than 25% of your available credit limit. The less you owe, the more likely you are to repay your creditors.
– Keep your credit card balances low. If you have many cards with high limits, close them or transfer the balance to another card before closing it. Closing accounts will result in shortening your overall credit history length, which can make it appear as though you’re starting fresh.
– Avoid opening new accounts until you’ve reached your goals. Each time you apply for credit, it’s recorded on your report as an inquiry and will affect your score accordingly (more info below). And be cautious when using online services that claim they’ll help build your credit by reporting positive activity to the bureaus since this only applies to secured credit cards.
– Keep your accounts open and active. Inactivity can result in a drop of 5 points from your score over time, so try to avoid letting any account go dormant. If you have closed or unused lines of credit, consider allowing a small bill (like a utility) post to the acct for a couple of months to keep the account active.
– Avoid having too much of your available credit limit used up. For example, it would be a good idea to consider canceling unused department store credit cards with high limits if you’re not going to use them. This way, your total credit usage is less than 50% of your entire available credit at any one time. Many scoring models consider low balances to indicate that you’re not taking on too much debt, which is seen as a positive (though this isn’t necessarily true if your credit cards are maxed out).
– Don’t close old accounts. If you’ve had the same card for ten years and have a $5,000 limit (for example), don’t close it. That will reduce the average age of your accounts and make it appear as though you’re starting fresh – not a good thing with credit scoring formulas.
– Put at least one type of recurring charge on all your cards every month, like Netflix or your internet bill, and this makes sure that your card activity shows up on your credit report every month.
– Pay more than the minimum due each time to get rid of debt faster. If you have a $3,000 balance at an interest rate of 10%, you’ll pay an extra $150 in interest if you make only the minimum payment ($250). But by making a monthly payment of $400 ($50 more than the minimum), you could save $1,000 in interest and pay off your debt 19 months earlier.
– Put a balance transfer on your credit cards. If you have good enough credit, 0% balance transfers are available for up to 18 months (or more extended with promotional offers). Just make sure that adding this debt won’t put you over your credit limit. And never transfer debt from one card to another to get the 0% period, resulting in more interest paid.
– Avoid buying with debit cards. Anything purchased with a debit card is classified as “cash” by credit bureaus, which means it doesn’t count toward your total debt. And because you’re not borrowing money, it has no impact on your score (positive or negative). This is also true for anything paid with cash; the only purchases that show up on your credit report are those made with borrowed money (credit cards).