A good credit score can improve your lifestyle by making it less expensive to use credit and borrow money. By maintaining good credit, you’ll be ready for big-ticket expenditures due to events like getting married, buying a house, or having a baby.
With the right credit card, you’ll be able to pay for expensive items over time rather than all at once, collect rewards like cash back or points, and if you are a new cardowner, pay no interest on purchases for six to 18 months. That’ll come in handy when shopping for your wedding, buying appliances for your new home, or outfitting a newborn’s room.
But what is a credit score, and how do you get a good one?
Creditors are companies that let you borrow money, either through a loan or by financing purchases on a credit card. When you apply for a credit account, the creditor must determine how creditworthy you are to help decide whether to approve your application and how much interest to charge you. Credit scores are the tools creditors use to ration and price credit.
A credit score is a number that denotes the likelihood that you will repay your debts on time. The two major consumer credit scoring systems are FICO (the market leader) and VantageScore, and both use a score value range of 300 (worst credit) to 850 (perfect credit).
You have good credit if your FICO score is at least 670 or your VantageScore is above 660. Beyond bragging rights, good credit means your average credit card interest rate (known as the annual percentage rate, or APR) will be about 19%, compared to almost 23% for fair credit and higher still if your credit is poor.
Consumers with any credit history – perhaps through a credit card, student loan, or another type of borrowing –usually have at least one credit score, but three scores are the norm – one from each major credit bureau (Equifax, Experian, and TransUnion). The bureaus calculate your score each month based on the information they receive from creditors about how you use your credit – your payment history, the amount you owe, and the number, type, and age of your credit accounts. It takes about six months to get your first credit score after opening a credit account.
To achieve a good FICO credit score, the two most important actions are to:
Failure to make timely payments will damage your credit score once you are 30 days past due. Other harmful events include defaults, repossessions, collections, foreclosures, and bankruptcies.
In addition, FICO rewards you for utilizing no more than 30% of the credit card credit available to you.
Keeping your credit score healthy marks you as financially responsible. That’s a good thing, especially when big spending is on the horizon.
Our product will soon be available through a bank or credit union near you. In the meantime, join our 10,000+ person waitlist receive company updates, helpful financial health articles and more.