Managing everyday expenses, settling debts, and planning for the future often overshadow efforts to raise one’s credit score. The process of improving a credit score can be time-consuming, taking months or years depending on the individual’s starting point, which may leave some questioning its importance.
However, for those aiming to access the best credit cards and top-tier financial tools, credit scores play a crucial role. Here’s what is essential to know about credit scores.
Credit scores, which range from 300 to 850, serve as a financial safeguard. The average FICO® Score is 715, and the average VantageScore stands at 702. A “good” FICO® Score begins at 670, whereas, for VantageScores, it starts at 661. These benchmarks suggest that most Americans are already regarded as creditworthy by creditors and lenders.
Generally, a higher credit score translates to more favorable rates on car, home, and personal loans, as well as qualifying for credit cards that offer better sign-up bonuses and balance transfer deals. Building a high credit score can also be advantageous in securing future financial stability, regardless of whether immediate credit access is necessary. A high score could facilitate acquiring cash during difficult times or lay the foundation for significant financial milestones, such as purchasing a home.
Another scenario where a high credit score can be beneficial is in the rental market. Many landlords require a score of at least 650 to qualify potential renters. In competitive rental markets like Los Angeles or New York City, a higher score may provide a competitive edge in securing housing.
Understanding how credit scores are calculated is crucial. Most top lenders use the FICO® Score for loan qualification assessments, calculated as follows: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
Raising a credit score is about enhancing financial health rather than striving for a perfect score of 850. Several strategies can be employed to improve a FICO® Score. Setting up autopay ensures timely bill payments, mitigating the impact of human error. Reducing revolving debt is challenging but essential, with balance transfer cards and personal loans serving as useful tools. Requesting credit limit increases on existing credit cards can decrease the credit utilization ratio, thereby boosting the score. Moreover, it is advisable to keep old credit accounts open, as closing them may reduce the average age of credit, potentially harming the score.
Improving a credit score may appear inconsequential if immediate credit needs are absent. Nevertheless, credit scores are integral to financial well-being and can facilitate borrowing at lower interest rates in the future. Thus, making an effort to enhance one’s credit score is a meaningful endeavor.
