Anyone who is financially aware knows that having a higher credit score can help you in many areas of life. It is just the way the system is set up and how the world works. Lenders, employers, landlords, and others may look at your credit score before deciding whether or not to continue doing business with you. Your credit score can mean the difference between a home loan with 3% interest and 8% or more. This can be hundreds of dollars each month. So, what is considered a good credit score?
If your credit score is too low you may not be able to get a loan, the job you want or live in the home of your choice. It important to know what goes into determining your credit score, how you can raise it and what a good score is that you can set out to achieve. Below we have included some of the most popular questions we receive regarding credit scores.
What is the average credit score in the U.S.?
The average credit score in the United States is 693 which is higher than it ever has been. This is a good thing, it means that more people are becoming financially responsible and paying attention to the importance of their credit score. However, it is important to know there are different credit scoring models and some have a higher average than others. This can cause your reflected credit score to fluctuate a little. Most Americans will fall between 665 and 725.
When determining your credit scores we recommend getting the average of the 3 credit bureaus. Adding all three scores together and then dividing by 3 will give you your average score and this will be the most accurate portrayal.
What is considered a high credit score?
Generally speaking, a good credit score is anything that is above 700. However, everyone has their own opinion on this. Excellent credit will be any score above 780. With a credit score above 780, you can usually qualify for the best interest rates on home and personal loans.
What is a perfect credit score?
The two most popular scoring brands are FICO and VantageScore both of which have a maximum score of 850. The lowest range you can have is 300 and not 0. At Sunbeam Financial we get asked all the time if it is possible to achieve an 850 credit score and the answer is YES. Although very rare, an 850 score is possible. In fact, about 1.3% of all credit scores in the United States are a perfect 850. Now that is a worthy goal to achieve!
How are credit scores determined?
Credit scores are determined using different criteria. The biggest factors that effect your credit score include your total credit limits, how much credit you currently have used, the amount of time the accounts have been open and your on-time payment history . When trying to get a loan, one of the biggest factors will be your debt to income ratio. This works the same for a good credit score, try to keep your total debt below 20 percent of your credit limit.
Paying your bills on time each month is very important towards your credit score. For example, if you are late paying your car payment, the bank may report it to the three main credit reporting agencies. When this happens, you will get a mark against you on your credit report which will have a negative impact on your credit.
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What affects credit score the most? Negative things to look out for..
- A lack of credit history
- Not making your payments on time
- Total outstanding debt is too high
- Closing several accounts in a short period of time
- Not having enough accounts open
- Having a bankruptcy
- Unpaid medical bills
- Not paying your utility bills
- Too many accounts with balances
- Using all of your available credit
All of these things can have a negative impact on your credit score. Of course, some have a greater impact than others. Try your best to avoid the items on this list if you want the highest score possible. Now that we know what to avoid, we will discuss what we can do to improve our credit rating.
How To Improve a Credit Score
- Watch your credit limits and keep your total debt on each account below 20 percent
- Make your payments on time each month
- Develop a long credit history with each account
- Examine your credit report for any errors and correct them
- Get a personal loan and pay it off within 6 months
- Delete old inquiries from your credit report
- Open a few accounts to build your available credit
- Ask for credit line increases from your credit card company
- Only apply for credit when necessary to reduce the number of inquiries
Doing the things listed above will have a positive impact on your credit score. There are a lot of benefits to maintaining a good credit rating. Quite frankly, it will make your life much easier in general. If you have a high credit score, you most likely have your financial world in order. This leads to less stress and a healthier life overall.
What is the point? Why do we use credit scores?
Agencies came up with a credit score in an attempt to fairly rank an individual person’s creditworthiness. In the past, if you wanted a loan you would go to your local bank. You would then consult with a loan officer who would look over your situation and either approve or not approve a loan for you. This could simply be based on the feeling he got from you or if you have a good standing within the local community.
Obviously, this system was flawed and needed to be updated. That is where the credit score comes into play. It can give an unbiased view of how good a person is with credit. Of course, even the credit score system is not perfect. There are a lot of people who have low credit scores that would be a great borrower.
Maybe you are just starting out and have not established credit yet or you had an accident and acquired medical debt that you couldn’t repay. It happens. Unfortunately, it can make it hard on your financial future. The good news is it is not permanent. You have learned what is considered a good credit score and can use the tips we have provided on this page to take your financial status to the next level. Get started today!
