YOUR credit score is important when applying for a credit card, mortgage or loan.
Also called a credit rating, the score determines your creditworthiness to lenders.
If your score is low, banks may refuse to lend you cash – or you’ll get a worse interest rate or deal than advertised.
But what is considered a good score and how can you build yours? We explain everything you need to know.
What is a good credit score?
FICO, the most well-known credit scoring system, and its rival VantageScore both use a range of 300-850 points.
The higher your credit score, the more likely you are to get the best deals.
A good FICO score is between 670 and 739, while 740-799 is considered very good and anything above 800 is excellent, according to her website.
If your credit score is below 580, you are considered a high-risk borrower.
Meanwhile, VantageScore approves of a score between 661 and 780.
Scores above 780 are considered excellent, while 601-660 is a fair score, 500-600 is poor, and 300-499 is very poor.
According to data from Experian, the average FICO score in the US rose to 711 in 2020.
This is an eight point increase from 2019 and the biggest spike since 2016.
VantageScore was developed by the three national credit reporting agencies (CRC) – Experian, TransUnion and Equifax.
While FICO has created different scoring models for each credit bureau.
How can I build my credit score?
There are a number of things you can do to build and improve your credit score – below we explain how.
Pay your bills and debts on time
This is one of the biggest factors that contribute to a good credit score.
A missed or late payment can seriously damage your score and remain on your report card for up to seven years, so make sure you pay your bills on time.
Reduce the amount of debt you owe
Another way to improve your credit score is to pay off debt instead of moving it.
Also make sure to keep the balance on your credit card as low as possible.
Check your credit report for errors
Errors happen, so it’s important to make sure your report is correct.
Contact your lender if you see something that is not right.
You are entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies.
You can order these online at annualcreditreport.com, the only authorized website for free credit reports, according to the Federal Trade Commission.
You can also call 1-877-322-8228.
Avoid multiple credit applications in a short time
If you make multiple credit applications in a short period of time, you will look desperate with lenders and they will not be happy to offer you credit.
It is important to only request it when you need it.
Before applying for anything, make sure you use the soft search eligibility checks to see if you are likely to get the deal on offer.
in 2020, a new credit scoring system has been introduced – and you may be accepted for cards and loans.
A few months ago, a super saver revealed how she bought her first house at the age of 23 with a low income and with an average credit score.
Meanwhile, a real estate expert has shared How do you buy a house if you have a bad credit score?.