Have you seen the TV commercials showing people bragging about their good credit scores? Well, they have reason to brag.
That's because they're getting the best interest rates and terms when applying for car loans, mortgage loans, credit cards, and even car insurance. Their applications for jobs and apartment leases are also considered more favorably over other applicants with worse credit.
So, do you know how your credit score stacks up? Read on to find out why you should try to get as close to 850 as you can, and about 10 signs that you have good credit.
Credit Is a Guessing Game Because There's No Official "Good" Credit Score Cutoff
When it comes to whether or not you have good enough credit for the lender who's looking at your credit score, the only thing you can be sure of is that a perfect credit score of 850, which is at the top of the score range (300 to 850 for both FICO and VantageScore 3.0), means you have excellent credit.
That's right. Each lender determines their specific credit score cutoffs, so there's no standard good or excellent credit score you can depend on, except that the closer your score is to 850, the better.
There's no standard good or excellent credit score you can depend on, except that the closer your score is to 850, the better.
Lenders also use different credit scoring models from one another, with FICO being the most popular and VantageScore 3.0 gaining, but you'll never know which score model the lender is checking. Your credit score also changes from month to month to reflect how you handle your credit accounts. It increases if you handle your accounts responsibly and decreases if you manage your credit accounts poorly, such as missing payments or maxing out credit cards.
Also, if you currently know you have poor credit, your biggest goal toward good credit would be to move through the 600s and into the 700s. If you already have a credit score in the 700s, you will be trying to move up as close to 850 as you can for the most excellent credit score possible.
If You Meet All 10 of These Criteria, You Have an Excellent Credit Score
You have a long, positive history with the same accounts.
Since the age of your credit accounts makes up 15% of your FICO Score, you get penalized a bit for opening new credit accounts and rewarded for keeping a long, positive history with the same credit accounts (which is why you typically don't want to close old accounts either).
You pay your credit bills on time.
Your credit account payment history makes up a large, 35% portion of your FICO credit score. If you always pay your credit accounts on time and haven't missed payments or even paid late in the last several years, your credit score can continue to climb the longer any late payment is in the past.
You have no collections or defaults in your name.
Ruining your payment history, collections or defaults on your accounts place a negative mark on your credit report, which decreases your score for seven to 10 years, depending on the type of collection. If you never default on your financial responsibilities and have no collections, the better your chances of having a good credit score.
You don't carry credit card balances from month to month.
How high your credit balances are compared to your credit limits is called "credit utilization." It plays a big part in the "amounts owed" category of your FICO credit score, and that category accounts for 30% of your FICO Score. The lower you keep these balances, the better your credit score. In fact, recent data from 6 million Credit Sesame users showed that the very best user scores between 760 and 840 all had credit utilization below 15%.
You got the best rate offered on a loan.
Experian Automotive tracks data on credit scores, car loan interest, payments, and terms based on VantageScore 3.0. Early in 2015, it found that super-prime borrowers (with high credit scores between 781 and 850) received an average interest rate of 2.73% for 61 months, and deep subprime borrowers (with low credit scores between 300 and 500) received an average interest rate of 14% for 72 months. So, for a new $27,000 car loan and the longer 72-month term, the higher interest rate adds on more than $11,000 to the cost of the car. Good credit gets lower rates and saves a lot of money.
You get a lot of credit card offers in the mail.
If you have good credit, you most likely get lots of offers in the mail as card and loan issuers try to entice you. And, if you've been trying to build your score, you will know it is improving by rising credit limit and lower interest rate offers, along with an increase in the sheer volume of offers delivered to you.
You've figured out how to game the rewards credit cards.
The only way to really take advantage of rewards credit cards, whether for airline miles, cash back, or other perks, is to never to carry a balance. If you carry a balance from month to month, you likely do not have the best score you could have, and you will definitely not be gaming the rewards cards that give you under 5% (most often around 1%) back while charging you an average 15% interest rate for carrying a balance.
You understand your credit score and keep tabs on it.
A 2015 Chase Slate Credit Survey found those who have previously checked their credit scoreconsider an average score of 719 to be a "good" score, while those who have never checked their credit score consider 668 a "good" score. So, the more you understand your credit score and how it affects you, and the more connected you are to your credit and your credit score, the higher your score is likely to be.
You have a substantial emergency fund.
If you have a good enough emergency fund to protect you from missing any monthly payments, and from charging up your credit cards for every little home repair or car breakdown emergency, you most likely have good credit that is also protected.
A credit monitoring or credit scoring website told you.
There are many ways to obtain a free credit score, and each might be a little different. For example, you can get one from your credit card issuer (Capital One and Discover, among others), or you can sign on to one of the free online credit monitoring sites, such as Credit Sesame, Credit Karma, or myBankrate. You can also pay FICO or Experian or others to see your monthly FICO credit scores. They all show you your exact numerical credit score and tell you whether your score is bad, poor, fair, good, or excellent, along with giving you some visual indicator of where you stand on the range between a bad credit score and an excellent credit score.
This article first appeared at DealNews.