We’re not off the hook yet, but with COVID-19 vaccines here, we’re headed in the right direction. I’m starting to see credit loosen up a bit, but it still takes a really good FICO score — think 760 or higher — to qualify for the best credit cards and balance transfer offers.
A high credit score also helps you save on insurance premiums, mortgages, and auto loans because you’ll qualify for the best rates.
So make yourself comfortable and reach for the credit stars. If you follow these tips, you will get there.
It’s like cleaning up your credit. You should review your free annual credit reports to make sure there is nothing inaccurate in your report. If so, it may unnecessarily lower your credit score.
So if you haven’t checked your free annual credit reports with the three major credit bureaus in a long time (or ever), go ahead and check all three. Review each line and make sure it looks correct. Also check for new accounts that you haven’t opened. This is a sign of fraud, and you will need to take action as soon as possible. The Federal Trade Commission offers steps to take if you need to dispute errors on your credit report. You can report identity theft at IdentityTheft.gov, which is also part of the FTC.
FICO scores range from 300 to 850. A very good FICO score is between 740 and 799. An outstanding score ranges from 800 to 850. Achieving a score above 800 is satisfying, but unnecessary.
The highest credit score you need is 760, which is in the very good category. As long as you have a FICO score of 760 or higher, you’ll get the highest interest rates when applying for credit.
To begin your quest for a FICO score of 760, you need to know what credit score range you are currently in. These days, if you can’t figure out your fair or outstanding credit, then don’t look very hard.
Here are some places where you can often get a free credit score:
Any score you see may not be a FICO score, but even the educational scores you get for free have value. If your only access is to a VantageScore and you want a FICO score, American Express and Discover both offer free FICO scores, and you don’t need to be a cardholder to access them.
If all else fails, you can always pay for a FICO score at myFICO.com for $19.95. Be sure to select “One Time Reports” so you don’t accidentally sign up for a monthly subscription.
You need two basic things to give yourself a shot at a high credit score: a budget and a way to track your spending.
Luckily, you have plenty of free options. You can use online software or a phone application. I use Mint online, but there is also a Mint app if you prefer to manage your finances through your phone. Check out this list of the best free budgeting tools you can use, including a pencil and paper if you’re comfortable.
If you don’t have a budget and aren’t tracking your spending, chances are you’re overspending. Think of it this way: if you don’t know how much you’ve spent on takeout this month, how do you know when to stop?
Payment history accounts for 35% of your FICO score, so it’s essential that you pay all your bills on time. Set up reminders or automatic payments to make sure you don’t pay late.
Another good step to take is to set up budget limits on categories. You will receive a notification when you approach the limit. This is the economy version of the “Stop Ahead” sign you might see on the road.
Your credit utilization ratio is the amount of credit you have used compared to the amount of credit you have. Credit usage accounts for 30% of your FICO score, so this is an important factor to keep in mind.
Your utilization rate should not exceed 10% if you are aiming for a high credit score. So in this example, your balance must not exceed $500 during the month (500/5000 = 10%).
Maintain a usage rate of 10% on all your cards and on your individual cards. The FICO algorithm considers both in the calculation.
If you have a balance of $5,000 on a credit card with a limit of $10,000, you have a ratio of 50%. Cut that balance in half and your ratio is 25%. That’s much better, but your score won’t be as high as possible until your balance drops below $1,000.
The best antidote for this is to pay off your debt. As your ratio begins to drop, your score begins to rise. As long as you have your budget in place and you continue to track your spending, you will achieve and maintain a high credit score.