Not feeling very confident in your rating? The main keepers of your credit score are Equifax, Experian and TransUnion and all have similar ways of calculating your credit score. Adopting good spending behaviors can help you across the board when it comes to your credit history.
Your credit score, also sometimes referred to simply as your FICO score, is arguably the single most important detail about you as a consumer.
Here is the generally accepted breakdown of how credit scores are considered either “good” or “bad“:
- 750 and above – Excellent
- 700-749 – Good
- 650-699 – Fair
- 550-649 – Poor
- 550 and below – Bad
Broken down further, here are the FICO scores ranges by percentage of people to give you an idea of how you stack up against others:
- 300-499 – 4.7% of people
- 500-549 – 6.8% of people
- 550-599 – 8.5% of people
- 600-649 – 10% of people
- 650-699 – 13.2% of people
- 700-749 – 17.1% of people
- 750-799 – 19% of people
- 800-850 – 20.7% of people
Falling into the better credit score ranges is a critical part of the state of your financial health. Having a good credit score can enable you to more easily do the following:
- Apply and get approved for a credit card with great rates and benefits
- Apply and get approved for a mortgage
- Refinancing a loan, such as an auto loan
Here’s the Formula for a Good Credit Score
Pay Your Bills On Time
This should be obvious, but the effect of late payments on your credit score cannot be stressed enough. One way to make sure you stay current on your bills is to set up automatic payments. If you don’t want to set up automatic payments, you should at least set calendar reminders a few days before the due date to give you time to pay if you need it. Take human error out of the equation.
Keep Your Balances Low
Having a high credit card limit does not give you license to spend like crazy. You should be trying to carry over $0 in balances each month if you can, but if that’s not possible you should definitely be keeping it to no more than 30%. Also, if you have a whole bunch of credit cards with small balances, you should organize them and pay off the balance on all of them. Don’t close those lines of credit, though. The older the account, the better that account reflects on your report and your score.
Don’t Give Off a Desperate Vibe
If you suddenly start changing your credit card behavior, you should look like a bigger risk in the eyes of the credit bureaus. Missing payments definitely can hurt, but suddenly paying less than you normally do on your balance, charging a lot more than you typically do, or taking out cash advances could also have a negative impact. Applying for several new lines of credit within a short time frame could also hurt you because moving your debt around doesn’t mean you actually have less debt. Just play it cool and chip away at your debt in a responsible, calm way.
Stay Vigilant With Your Progress
There are a multitude of ways you can stay on top of your credit score progress. You’re entitled to a complete copy of your credit score from all of the three main credit bureaus once per year through AnnualCreditReport.com, while services like Credit Karma offer ways to check your score in real time.
Monitor Your Credit Report Regularly
You should be monitoring your report periodically to make sure everything on there is correct. If there are items included in your report that are errors, those things can affect your credit score, it’s important that you take the steps necessary to dispute the information as soon as possible. If you dispute an error, both the credit reporting agency and the provider of the incorrect information are responsible for correcting the mistake in a timely manner. Here are the specific steps you need to take:
Disputing Errors on Your Credit Report in Two Steps
Step one: In writing, let the credit card company you have found an error on your report. The letter needs to clearly define which item or items you’re disputing and submit copies of the relevant documentation to prove your claim – never the original. You might want to consider including a copy of your credit report with the items in question circled.
Step two: Wait for the credit reporting company to get back to you. Unless they have good reason to believe your claim is super weak, they’re supposed to investigate within 30 days. When a decision is made the company is required to provide you a written summary of the results and an explanation if your claim for false information was found to be invalid. The credit company is supposed to send an updated, corrected copy of your report to anyone who asked for your credit information within the last 6 months if you ask them to – so definitely make sure to do that.
Stay Savvy About Your Finances
Getting yourself into a better credit rate category takes time – there’s no doubt about that – but staying savvy about your finances and adopting a few responsible behaviors can rebuild your score in no time. Gather all the information you can about your cards and evaluate your spending to strategize the smartest ways to handle your money.