What’s a Good Credit Score? How Do You Fix a Bad One?
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Learn how your credit score is calculated and how you can increase it to get better deals on your mortgage, insurance, and more.
If the two of you are planning on refinancing your mortgage or buying a house with a loan in the near future it's important to get a handle on your credit report and your scores.
Why Your Credit Score Matters
Higher credit scores typically mean you can qualify for lower interest rates, which can save you tens of thousands of dollars or more over the course of the mortgage so it pays to stay on top of credit monitoring.
Before we get into what a ‘good' credit score is, I want to review how credit scores are calculated.
Examining How Credit Scores are Calculated
Many people, including myself years ago, use credit reports and credit scores interchangeably.
While they are related they are not the same. Quite simply, your credit scores are calculated based on what is on your credit report.
Your credit report is a record of your history of payments on your debts and helps lenders determine your credit worthiness.
You have 3 credit reports, one with each credit bureau – Equifax, Experian, and TransUnion.
Since they're used for your credit scores, please check to make sure it's accurate.
Checking Your Credit Report for Free
If you're looking for a free option on checking your credit reports, you can use Annual Credit Report.
You're entitled to reviewing all 3 of your reports for free. This is a completely free site, no trial, no membership sign-up.
Breaking Down Your Credit Score
According to FICO, credit scores are calculated by a few factors, weighted differently:
- 35% Payment History
- 30% Amount Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of Credit
Your credit score from each bureau is a number between 300-850 that each of the credit agencies assign based on the information on your credit report. Since the information should be the same across the board, your scores should be quite similar, but that's not always the case.
Good Credit Scores Save You Money
Credit scores range from 300 to 850, with many people around 600-700. If you're looking for a minimum to work for, then 720 or better is something to shoot for.
When I was checking FICO to see what interest rates for mortgages you can get based on your credit scores, here's what it came up with:
I want to mention, while you can get your credit reports through Annual Credit Report, you can not get your credit score.
You can use free option like Credit Sesame to get a credit score using data from Experian updated monthly.
The free membership (no credit card required) allows you to see your credit score and you can also get suggestions on ways you can save money on your finances, like mortgages or credit cards.
I wrote a review on Credit Sesame if you're interested in how it works.
Thoughts on Credit Scores
I'd love to hear from you. When was the last time the two of you checked your credit reports? Do you have an idea of what your credit scores are?
I check my credit score pretty frequently! CreditKarma is a pretty wonderful thing! It also keeps me up-to-date on inquiries or changes made.
My fiance and I check our credit scores just about every week via Credit Karma. It is so detailed and really keeps me in the know about what Im doing with my credit and how evrything I do affects, positively or negatively, my credit score. I am 22 and when I first started tracking my credit score in June, my credit score was a 573, I currently have a credit score of 642, hopefully will be able to get it up to a 700 by January and a 750 by next June. Some say its unrealistic but that is my goal. I have been making significant changes in the way I use my credit cards, how I pay for them and how I apply for others. America is a really “credit based” country and I dont ever want to have to be deprived of things because of my credit score. Your article and many others have truly helped me on my quest to a better credit score. Thanks!
My husband and I check ours about once a month. I use Credit Karma, he looks at his free score provided by our credit union. It does seem like a lot of banks and credit cards are providing access to credit scores as part of their service and with no additional charge these days.
He’s usually a few points higher, and it’s one of the few things he gets competitive about. I’m not too upset at losing, my score is still in the excellent range.
So many college students and recent graduates undervalue the true importance of creditworthiness!
Many think they are doing themselves a favor by avoiding credit cards, but they don’t realize that they are missing out on an easy way to build credit. This leaves them ineligible for many things like mortgages (as you mentioned), auto loans, and, maybe most relevant for these young adults, student loan refinancing!
I’m glad you’re helping spread the word of the importance of building and monitoring credit!
We’ve gotten a couple of new credit cards within the past year. Not sure how that’s affected things but it’s (hopefully) in the noise.
Based on what I’ve seen and read, it shouldn’t be a big deal. Just curious, did you go for a rewards card?
When you go to borrow money, a good credit score does not guarantee a good interest rate — or even approval.