Are you curious about what constitutes a good credit score? Do you want to know how to achieve and maintain a good credit score? In this comprehensive guide, we will answer these questions and provide valuable insights into understanding and improving your credit score.
Here are five questions to ask when considering what is a good credit score, and how you can get on track for receiving one.
1. What Are Credit Score Ranges?
You have multiple credit scores. But the most important ones to pay attention to are your FICO Scores and VantageScore.
Both use the same credit score range – from 300 to 850. Within this range, the quality of your credit score is broken down into 5 main categories:
- 750-850 – Excellent credit
- 700-749 – Good credit
- 650-699 – Fair credit
- 600-649 – Poor credit
- 300-599 – Bad credit
So what is a good credit score? Anything between 700 and 749. You could still be in decent shape below 700, though. You’re only in subprime credit territory if you fall below 640.
2. Where to Find Your Credit Score?
You could pay to receive a credit report from one of the three big credit bureaus — Experian, TransUnion, and Equifax.
There are, however, a couple of free ways to find your credit scores:
- Your credit card issuer may include your FICO Score with your monthly statement
- You can sign up for free credit monitoring through sites like Credit Karma and Credit.com
- Credit monitoring will include your VantageScore as well as access to information on your credit reports
3. How Long Does it Take to Get Good Credit?
The timeframe for achieving good credit largely depends on the starting point of your credit score. If your credit is currently fair, you might be able to reach a good credit score in less than three months. However, if your credit is poor, it may take six months to a year or even longer to see significant improvements.
To expedite the process of building good credit, it’s essential to take proactive steps. Here’s a timeline outlining the actions you can take within specific timeframes:
1 – 3 Months
- Request all three of you credit reports from Experian, TransUnion, and Equifax through AnnualCreditReport
- Look through your credit reports and dispute errors with the credit bureaus or original creditors
- Ask for debt validation from collection agencies
- Sign up for free credit monitoring through Credit Karma and Credit.com
3 – 6 Months
- Send follow-up letters to the credit bureaus, if necessary
- Settle old, unpaid debts (check the statute of limitations on debt in your state)
- Make a plan for paying off your debt
- If you don’t have a credit card, apply for one so that you have a better credit mix and more available credit (get a secured credit card if need be)
6 – 12+ Months
- Continue paying off your debt, increasing your payments if possible
- If you only have one credit card, consider applying for another one (if several months have passed since you opened the first one)
- Check your credit reports again through AnnualCreditReport
4. Habits for Building and Maintaining a Good Credit Score
In addition to the steps outlined above, there are several habits you can develop to build and maintain a good credit score:
- Timely bill payments: Pay all your bills on time, every time. This consistent payment history demonstrates responsible financial behavior.
- Credit card balances: Aim to pay off your credit card balances in full every month. If you carry balances, strive to keep your utilization below 30% of your available revolving credit.
- Avoid excessive credit applications: Applying for multiple lines of credit simultaneously can raise red flags and indicate potential financial instability. Space out your credit applications by several months.
- Avoid unnecessary loans: Only take out loans when necessary rather than solely for improving your credit score. Paying off an installment loan may temporarily lower your credit score if it reduces the variety of your credit lines.
5. Possible Setbacks in Credit Scores
It’s essential to be aware that certain actions could negatively affect your credit score. Here are a couple of common setbacks and how to avoid them:
- Hard inquiries: Each time you apply for a new line of credit, a hard inquiry is recorded on your credit reports. Minimize hard inquiries by applying only for credit cards you genuinely qualify for to avoid unnecessary rejections and additional inquiries.
- Multiple credit applications: Applying for too much credit in a short period raises concerns for credit bureaus about your creditworthiness. Space out your credit applications by several months to avoid this red flag.
- Paying off an installment loan: While it may seem counterintuitive, paying off a substantial loan can temporarily lower your credit score. This is because it reduces the overall amount of credit you have. However, over time and by following good credit practices, your score will recover.
The True Definition of Good Credit
Ultimately, a good credit score is not merely a number; it is a reflection of responsible financial behavior. Focus on developing and maintaining healthy credit habits such as timely payments, responsible credit utilization, and avoidance of unnecessary credit applications. By doing so, you will naturally achieve and sustain a good credit score.
Remember, building good credit takes time and patience. Stay committed to the process, and you will soon reap the rewards of a strong credit profile.
