Your credit score — that sometimes mysterious number that reflects how responsible you are for your credit — plays a gigantic role in your overall financial life.
Almost every time you apply for credit, someone (or in some cases, a computer) will look at that number to determine if they’re willing to extend that credit to you, and if so, at what rate. This is the case whether you are applying for a new credit card, a car loan or a mortgage.
I hope you know your credit score (if not, we will help you discover), but do you know if your credit score is Well?
In this article, we’ll cover what money expert Clark Howard and others consider a good credit score, where you can track your score, and how to improve it if it needs work!
What is a good credit score?
Your FICO The credit score, the score most used by lenders, is a three-digit number that can range from 300 to 850.
So how do things break down in this range when it comes to “good” and “bad” scores? Here’s how the credit reporting agency Experian sees her:
As you can see, according to this chart, the majority of Americans have “Good”, “Very Good” or “Exceptional” scores.
Indeed, from 2021, the average FICO score nationwide is 716.
But different creditors have different ideas about what makes a “good” credit score. For this reason, your ability to obtain credit and the rate you are offered may vary. This is why some people shoot for a score of 850something Clark says “you’re crazy if you’re obsessed with.”
You don’t have to aim that high.
That said, if your credit score is currently in the 600s, 760 might seem like a long way off. But that’s no reason to be discouraged.
There are other numbers that can make a huge difference in the offers you receive and the rates you can get on loans, Clark says:
“There are certain breaking points where things get easier for you. The one that is really important is to be around a 680. This is a point at which people look at you differently than when you are below.
Now that you have scores to target if you want to be considered someone with “good” credit, how do you track your progress toward those goals?
Where to get your credit score and track it for free
Both services give you instant access to your VantageScore 3.0 (which should be very similar to your FICO score), tips for improving it, and the ability to receive alerts when your score changes.
Remember what Clark said about not obsessing over your score? By registering on one of these sites, you will stay aware of your number without feeling the need to constantly check it.
You can also get free credit reports, which are more comprehensive than what you get with Credit Karma or Credit Sesame, from the three major credit bureaus once a year at AnnualCreditReport.com.
How can you improve your credit score?
To improve your credit score, you need to consider each of the factors that go into calculating your score. According to MyFICO.comthese factors are:
As you can see from the graph, the most important factor is your payment history: not paying your bills on time can seriously hurt your credit score. Even if you’ve had late payments in the past, you can improve your score in the future by paying every bill on time.
The second most important factor is what you owe. This is calculated as a percentage: the amount you owe divided by the total amount of credit you have. It’s best to keep it below 30% – even better if you can keep it below 10%.
So if your total line of credit (among all your credit cards and other loans) is $10,000, it’s fine to owe less than $3,000 and fine if you owe less than $1,000.
Length of credit history
The second most important factor is the length of your credit history. This is determined by the date you opened your oldest still active credit account. Since you can’t go back in time and open an account earlier, the most important thing you can do in this area is to make sure you don’t close any of your old accounts.
New credits and combination of credits
Finally, representing 10% each of your credit score, are your new credit and your credit mix.
New credit means credit that you have applied for that results in an investigation into your account. Almost every time you apply for credit (whether you’re approved or not), your score will drop a little. It usually doesn’t take long to recover, but the important thing to remember here is to only apply for the credit you really need. If you apply for every card offer you receive, your score will suffer.
Your credit mix refers to the different types of credit you have. Again, this one isn’t a big deal, but someone with credit cards, a mortgage, and a car loan will generally be judged more favorably than someone who only has credit cards.
Tip: Another great thing about Credit Karma and Credit Sesame is that they both have score simulators, which let you play around with things like paying off balances and opening new lines of credit to see how these things might affect your score.
Now that you know what counts as a “good” credit score, you might be encouraged because you’re already there, or discouraged because you feel like you have a long way to go. If you belong to the latter group, don’t worry: you can do it.
“The problem with credit scores is that it’s a relative scale. Your goal is wherever you are right now, to try and increase that number,” Clark explains.
Armed with the knowledge you have now, today is the perfect day to start working towards that goal.