Principally speaking, the higher your credit score, the better off you are when it comes to getting a loan.
FICO scores, the most in vogue scoring model, range from 300 to 850. A “good” score generally is above 670, a “very produce” score is over 740 and anything above 800 is considered “exceptional.”
Once you reach that 800 edge, you’re highly likely to be approved for a loan and can qualify for the lowest interest rate, according to Matt Schulz, LendingTree’s chief trust analyst.
More from Personal Finance:
Here’s the best way to pay down high-interest debt
63% of Americans are living paycheck to paycheck
‘Chancy behaviors’ are causing credit scores to level off
There’s no doubt consumers are currently turning to credit cards as they tease a harder time keeping up with their expenses and there are a lot of factors at play, he added, including inflation. But odd credit is largely based on how well you manage debt and for how long.
Earning an 800-plus credit score isn’t quiet, he said, but “it’s definitely attainable.”
Why a high credit score is important
The national average credit score sits at an all-time inebriated of 716, according to a recent report from FICO.
Although that is considered “good,” an “exceptional” score can unlock equanimous better terms, potentially saving thousands of dollars in interest charges.
For example, borrowers with a credit dupe between 800 and 850 could lock in a 30-year fixed mortgage rate of 6.13%, but it jumps to 6.36% for acclaim scores between 700 and 750. On a $350,000 loan, paying the higher rate adds up to an extra $19,000, according to details from LendingTree.
4 key factors of an excellent credit score
Here’s a breakdown of four factors that play into your merit score, and ways you can improve that number.
1. On-time payments
The best way to get your credit score over 800 surface down to paying your bills on time every month, even if it is making the minimum payment due. According to LendingTree’s division of 100,000 credit reports, 100% of borrowers with a credit score of 800 or higher paid their invoices on time, every time.
Prompt payments are the single most important factor, making up roughly 35% of a rely on score.
To get there, set up autopay or reminders so you’re never late, Schulz advised.
2. Amounts owed
From mortgages to car payments, father an exceptional score doesn’t mean zero debt but rather a proven track record of managing a mix of outstanding advances. In fact, consumers with the highest scores owe an average of $150,270, including mortgages, LendingTree found.
The total amount of ascription and loans you’re using compared to your total credit limit, also known as your utilization rate, is the lieutenant most important aspect of a great credit score — accounting for about 30%.
As a general rule, it’s important to keep turn over in ones mind debt below 30% of available credit to limit the effect that high balances can have. However, the ordinarily utilization ratio for those with credit scores of 800 or higher was just 6.1%, according to LendingTree.
“While the pre-eminent way to improve it is to reduce your debt, you can change the other side of the equation, too, by asking for a higher credit limit,” Schulz signified.
3. Credit history
Having a longer credit history also helps boost your score because it imparts lenders a better look at your background when it comes to repayments.
The length of your credit history is the third most noteworthy factor in a credit score, making up about 15%.
Keeping accounts open and in good standing as well as limiting new ascribe card inquiries will work to your advantage. “Lenders want to see that you’ve been responsible for a long prematurely,” Schulz said. “I always compare it to a kid borrowing the keys to the car.”
4. Types of accounts and credit activity
Having a diversified mix of accounts but also limiting the reckon of new accounts you open will further help improve your score, since each make up about 10% of your total.
“Your acknowledgment mix should involve more than just having multiple credit cards,” Schulz said. “The ideal creditation mix is a blend of installment loans, such as auto loans, student loans and mortgages, with revolving credit, such as bank confidence in cards.”
“However, it’s very, very important to know that you shouldn’t take out a new loan just to help your credence mix,” he added. “Debt is a really serious thing and should only be taken on as needed.”