Understand this vital number and how it impacts your life
What is a good credit score…...To often people do not know this answer and it plays a vital part in their life. A good credit score can ultimately save you a lot of money and who doesn’t like that!
Payment history - accounts for 35% of credit score
Paying your bills on time is huge when trying to improve a bad credit score and/or trying to establish a good credit score. Always pay your bills on time. Get out of that minimum payment mentality. If you do that you will end up paying hundreds if not thousands more over the long run.
Amount owed - account for 30% of credit score
Want to try to keep your amount owed on your credit card below 20% of your available credit. Your credit line is your monthly line of credit it will start out small at like $500 or $1000 dollars when you get your first card. Mine started at $500 when I applied for my Discover card. So 20% or less of $1000 is $200 per month is the number you would want to stay below. Over time they will ask if you want to increase your limit and/or you can ask to have it increased as well. They will normally grant you your request as long as you have a good history of making your payments on time. Just because you increase your limit doesn’t mean you start spending more. Remember to keep strive to use less than 20%.
Length of credit history - account for 15% of credit score
The longer your established credit is the better off your score will be. Even if you don’t plan on using the card it is good to establish some type of credit history.
New credit - account for 10% of credit score
Anytime you open up a new line of credit. For example, whether that is buying a home, a car, or opening up a new credit card at first it will bring down your credit score; but soon after if you have showed that you are paying on time it will ultimately improve your credit score. Don’t apply for new credit just for the heck of it though. Do your research when it comes to applying for new credit and ask yourself if you truly need it.
Types of credit used - account for 10% of credit score
The different types of credit that you have open will impact your credit as well. Whether is a house, car, student loans etc.
You can get your credit score checked once a year from the following three credit bureaus. It is better to space these out throughout the year instead of getting them all checked at the same time. The credit bureaus are Experian, TransUnion, and Equifax. You can go to www.annualcreditreport.com. Review 1 report every 4 months (rather than piling on 3 at one time). Consider creditkarma.com (provides the TransUnion and Equifax scores) and credit.com (provides Experian score) to track all 3 scores. These sites are FREE. Just ignore the advertising.You don’t want to “hard pull” of checking your credit score more than once a year because getting it pulled too many times will hurt your credit. Doing a “soft pull” like going to the website above will not hurt your credit score. A hard pull would be seeing what interests rate they would give you when buying a home, a car, starting a business, etc. Do you research and know for sure before having those companies pull your credit score. That is why every time you open up a new line of credit it will bring down your credit score at first.
Achieving a good credit score will save you thousands when applying for a mortgage loan by getting the lowest possible interest rate that you can. It can help you qualify for 0% APR for a car. Some employers will want to look at your credit score, so it can help your ability to get employed. Insurance companies will want to know as well and any other credit offers that you come across.
By simply following these steps you will know what is a good credit score and how to achieve it easily. The goal is to get to 760 so you get the best rate possible.
Higher is better, but the number worth aiming for is 760. Once you're there you'll qualify for about the best rates lenders offer, and that's where the real money is. The article lays out the goal plainly. Get to 760 and you've earned yourself the best deal on the table.
Payment history, hands down. It's 35% of the whole score, so paying your bills on time is the single biggest lever you can pull. Amount owed is next at 30%. After that it's length of history at 15%, then new credit and types of credit at 10% each. Nail the first two and you're most of the way there.
Try to keep your balance under 20% of your available credit. So if your limit is $1,000, you'd want to stay below $200. As your limit grows over time, the dollar figure goes up, but the 20% target stays the same. The trap is treating a higher limit as permission to spend more. Don't.
Depends on the type of check. A soft pull, like looking at your own score on a free site, does no harm at all. A hard pull, like a lender checking when you apply for a mortgage or car loan, dings it a little. So check your own all you want, just don't go around applying for credit you don't need.
You're entitled to one free report a year from each of the three bureaus at annualcreditreport.com, and it's smart to space them out, one every four months, so you've got eyes on your credit year-round. Sites like creditkarma.com and credit.com let you track your scores for free too. Just ignore the advertising.
Because a good score quietly saves you real money. It lands you the lowest rate on a mortgage, which can be thousands over the life of the loan, and it can help with a car loan, insurance rates, even some jobs. We don't want you leaving money on the table, and a strong score is one of the easier ways to keep it. Does that make sense?