Like money, good credit isn’t everything in life – but it can make things a lot easier. Whether you’re looking to buy a car, secure a credit card, or refinance your student loans, good credit is essential. A good credit score can also provide peace of mind since it makes it more likely that you’ll be able to obtain financial assistance and higher lines of credit, should an emergency happen. But, what exactly is a “good” credit score, and how can one achieve it?
First, you should understand that there are a few different types of credit score models, with the most popular being FICO. FICO, or Fair Isaac Corporation, scores essentially set the standard for credit scores, since this method is most often used to assess one’s credit standing. According to the FICO model, scores range from 300 to 850 points, with a “good” credit score falling somewhere between 670 to 739, and 850 is a perfect score.
If your score isn’t anywhere close to 850 – or even 670 – you might worry that you’ll never reach financial stability. However, there are many ways to slowly, but surely, raise your credit score. Here are just a few solid, time-tested ways to turn your credit around:
Always Pay Your Bills and Loans on Time
Your payment history accounts for over a quarter of your FICO credit score – 35 percent, to be exact. Paying your bills on time indicates to lenders that you’re on top of your financial responsibilities and “good risk,” or someone worthy of favorable credit decisions. In other words, you’ll be more likely to score that high credit line or low-interest mortgage decision, if you pay your bills on time, every time.
Establish a Long Credit History
Here’s one area where age is much more than just a number. Having a good, long credit history is a positive mark on your credit score. That’s because credit scores are partially based on your experience with credit cards and other loans. Maximize your credit potential by never closing credit accounts, even ones you no longer use. Keep them active and paid off to obtain the maximum benefit.
Only Apply for Credit When It’s Necessary
Having high credit lines – when harnessed responsibly – is a good thing. However, asking for too much credit can negatively impact your score. Applying for a lot of new credit in a short amount of time suggests to lenders that you’re not financially stable, and therefore a high default risk. Not to mention, applying for credit usually results in a temporary, decreased credit score, so only apply when necessary.
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