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Trying to find ways to improve your credit score can sometimes feel like you're trying to dig yourself out of a quicksand pit; basically, it's a never-ending journey. But even though the average American's credit score is relatively high at 680 according to the VantageScore model (which categorizes data into six main categories out of a high score of 990), and 703 based on the FICO score model (which categorizes data into five main categories out of a high score of 850), there are still thousands of individuals in the U.S. who are looking to improve their scores.
After all, a good credit score can help you more easily rent an apartment or receive lower interest rates on a car, for instance. "A credit score is a numeric representation of how 'risky' you are as a borrower. In general, the better your score is, the cheaper the money will be when you finance. For example, with a higher score, your chances of getting approved for a loan with lower interest rates and fees are increased," Christina Lucey, director of product and financial advocate at Credit Karma, tells HelloGiggles. "And this can mean significant savings over the life of the loan."
And with those savings, you can have a less stressful financial life—one that isn't drowned with high interest payments. But what exactly constitutes as a high credit score, and how can you improve your credit score over time? We connected with financial experts to find out.
What is considered a good credit score?
According to Lucey, "scores starting in the high 600s and up to the mid-700s (on a scale of 300 to 850) are generally considered to be good." While slight day-to-day fluctuations in your credit score are common, most lenders require that individuals meet a credit score requirement to be able to gain access to certain financial products like housing, car insurance, and even cell phones, according to Lucey.
If you're unsure exactly what your credit score means in the eyes of credit bureaus, Lucey provided a simple guide below to use as a reference.
- "If your score is in the 300 to the low-600s range, you’re in the 'poor' range. You might not be able to get approved for a loan or an unsecured credit card at all. If a lender or issuer does approve an application, it likely won’t offer the best terms or lowest possible interest rate."
- "If your score is in the low-600s to the mid-700s range, you’re in the 'fair to good' range. You’re more likely to get approved for financial products and may be able to shop around and compare options among different lenders. But you still might not get the best terms."
- "And if your score is about the mid-700s or above, you’re in the 'excellent' range. A lender could deny an application for another reason, such as having a high debt-to-income ratio, but those with top credit scores likely won’t have their applications denied because of their credit scores. You are also most likely to get offered a low-interest rate."
What factors affect your credit score?
One of the main things that affects your credit score is your payment history. According to Lucey, certain accounts are reported month to month to the credit bureaus (like your credit cards) while other accounts may not show up on your report unless they are severely delayed (like your cell phone bill). "Even one missed payment can hurt your credit score. So, do everything you can to not miss a payment entirely," Lucey says. "It’s a smart idea to check your credit report regularly to see which accounts get reported on a regular basis and confirm your payments are being reported accurately."
But while payment history is one of the largest factors that will negatively impact your overall score, there are a few other things you need to be mindful of that can also reduce your number. For instance, Lucey adds that credit usage or credit utilization is the next biggest thing that will put a ding on your credit score. "A lower utilization rate is better for your credit scores. Keep in mind that even if you pay your bill in full each month you could still appear to have a high utilization rate," she says.
The good news is, not all factors are considered as important as the two above—but if you still find yourself with a lower score than you would like, Angela Holliday, president of Frost Brokerage Services, Inc. and Frost Investment Services, suggests you look into these other issues below to see if they are negatively affecting your credit score.
- "Whether it’s a lender or a store checking, too many inquiries into your credit in a short amount of time can have a negative impact on your credit score. Repairing your credit will take time and cannot just be done in a few months, so you do not need to regularly check your score."
- "Defaulting on accounts can also negatively impact scores. For example, foreclosures, bankruptcy, repossession, charge-offs, or settled accounts have the ability to severely hurt your credit for years."
Keep in mind, though, that if you have a lower credit score, the last thing you want to do is close one of your credit cards. "Many people incorrectly think they should close a card if it's never used or if it’s finally paid off. While it may seem responsible to close credit cards you no longer use, closing accounts might actually damage your credit temporarily," Lucey explains. "Each additional credit card you have can help keep your credit utilization rate low if you’re also able to keep your spending in check. And, closing a card shortens the length of your overall credit history, which is another factor that makes up your credit scores."
If you have an old card that you no longer regularly use, Lucey suggests using it for small purchases (like a subscription) to keep it active. However, "if an older card has annual fees, you can always ask the lender to downgrade it to a card without the fees and still maintain your history," adds Lucey.
How to improve your credit score:
The good news is, there are a lot of ways you can increase your credit score with limited effort. At the end of the day, it's about not only regularly checking your score, but implementing other good habits that work for your finances and lifestyle.
1. Create a financial plan to set goals.
"There is no magic bullet to quickly improving your credit score. You can’t get to the long-term without the short-term first," says Holliday. One of the ways you can begin to set a plan in place is by focusing on what you can control versus what you can't. "Your thoughts should be 'this is what I can control right now' so I have to make sure to secure the short-term so that I can get to those long-term goals eventually," Holliday explains. "With two in five Americans citing a poor financial situation during COVID-19, according to research from Frost Bank, it's a good idea to review your current budget and get financially educated to support your credit journey."
2. Pay bills and debt on time.
One of the easiest ways you can increase your credit score is by paying your bills on time. And if you can pay your debts in full, that's even better. "By using your credit cards and paying the balances in full each month, you’ll be able to show that you’re using your credit responsibly," says Lucey. "If you can pay your credit cards in full a few days before the statement date, there’s a good chance you bring your balance to $0 before it gets reported to the credit bureaus which is the best thing you can do for your credit utilization."
However, don't stress if it's not realistic to pay your credit card in full at this time (trust—you're not the only one). As long as you pay your bills and credit card on time, you should increase your score in no time. "Your payment history is one of the most important credit-scoring factors, and having a long history of on-time payments is best for your credit scores," says Lucey.
3. Increase your credit limit.
"Increasing your credit limit can have the ability to improve your credit score by lowering the amount of credit you’re utilizing or helping in an emergency situation," says Holliday. "However, before this is considered, make sure you are able to pay your bills on time, debt has been paid down and there are no outstanding payments."
According to Lucey, you want to keep your credit card utilization under 30%. By increasing the limit, you're able to meet this percentage easier. "For example, if you have a $5,000 credit limit and spend $1,000 during your billing period, your credit utilization rate will be 20%. But if your credit limit is increased to $10,000 but you spend the same $1,000, your credit utilization drops to 10%. As credit scores are calculated using an algorithm, the lower you can get this number, the better," she explains.
One of the ways you can increase your credit limit is by directly calling your credit card company to see if you meet their criteria and if there are any penalties for taking the action. However, according to Lucey, "There is never a bad time to do this and it does not hurt you in any way to make this request, even if the lender says no."
But if you just don't feel comfortable increasing your credit limit, you can make credit card payments more than once a month instead. "This way, your balance never gets too high. Your credit card issuer will typically report your credit activity to the credit bureaus once a month. So, if you pay off a portion—or even all—of your credit card bill before that date, you can lower your credit utilization," Lucey adds.
4. Ask for help early on.
According to Holliday, you can contact your creditors and lenders to see what kind of relief they can offer you if you have suffered financially due to an emergency. The key is to make sure that you don't wait to ask about the relief until you're already missing payments—make sure to inquire beforehand if you know the future is looking bleak. "By negotiating relief upfront, you can avoid negative credit bureau reporting, but continue to monitor your credit to make sure you don’t have any delinquencies," she explains. "Most utilities (electricity, phone, gas, etc.) won’t terminate services during a crisis."