Your credit score says a lot about your reliability to pay your debt. Lenders, whether it be a credit card company, mortgage company, or loan provider, will use your credit score to determine their risk of not being repaid.
Establishing good credit is a must if you want to get a mortgage, credit card, loan, or pay less interest.
But what is the definition of “good credit?”
What Credit Score is Considered “Good?”
Credit scores make up five different categories. A “good” score is right in the middle. Let’s take a look at FICO score ranges, according to Experian:
- Very Poor – 300 to 579
- Fair – 580 to 669
- Good – 670 to 739
- Very Good – 740 to 799
- Exceptional – 800 to 850
VantageScores have 661 to 780 as good, according to Experian. Every credit bureau has a slightly different definition of “good.”
- Equifax – 600 to 724
- TransUnion – 658 to 719
According to this data, good credit may be between 600 and 739. Establishing good credit means taking strategic steps to boost your credit.
5 Tips to Establish Good Credit
1. Use Your Credit Card Sparingly
When you make too many purchases, you are going to hurt yourself in two ways: taking on too much debt and increasing credit utilization. You need to change your buying habits and only charge items that you know you can afford.
2. Keep Utilization under 30%
If your credit utilization rate is too high or low, it will impact your credit score. Utilization is the ratio of how much debt to credit you have available. If you have $10,000 in credit and have a balance of $3,000, you are at a 30% utilization. Ideally, you should keep credit utilization to 30% or less.
3. Make Payments On-Time
Payments should be on time. Whether you are paying back loans, a mortgage, or a credit card, try and make your payments on time, every time. Missing payments will cause your credit score to fall. Minimum payments are ok, but when possible, try and pay a little more than the minimum amount.
You will pay less interest by making more than the minimum payment and will show creditors that you are serious about paying off your debt.
4. Make Small Purchases
Banks will quickly close a credit card account for inactivity. The closure of an account will cause your credit score to fall.
Since creditors want to see consistency in your credit report, be sure to make small purchases that you can pay off each month to keep your accounts open.
Charging gas or food to your card and paying it off each month allows you to keep your accounts open and demonstrates creditworthiness.
5. Consider Credit Repair
Delinquent payments, errors on your credit report, or having too many accounts open can negatively impact your credit score. Work with a credit repair company to help:
- Remove debts that are not yours
- Remove negative items from your report
- Work with creditors on better repayment terms
A credit repair company will put you on the fast-track to boosting your credit score if you have bad credit. Obtaining your credit report, looking for errors, and fixing issues, are the first steps to improving your credit.