Easy access to free credit scores has helped many Americans improve their credit. But at a certain point, chasing every possible point gets you nothing except bragging rights.
How do you know when your credit score is high enough for you to relax?
Checking your credit score is a bit like checking your weight. You don’t need to obsess over every fraction of a pound, and an occasional indulgence (or high credit card balance) won’t do lasting damage if your habits are generally healthy.
What’s your goal?
Most credit scores are on a scale of 300 to 850. Nationally, the average credit score is just above 700 for FICO and 680 for its competitor, VantageScore. So that’s one way of comparing your number.
But being about average doesn’t necessarily put you in the best position to qualify for the credit product you want at decent interest rates.
Atlanta-based credit expert John Ulzheimer, who has worked for FICO and credit bureau Equifax, says a healthy range depends on what your goals are. If you want to buy a car, you probably need a score of at least 720 to get the lowest interest rates, he says.
If you want to qualify for a mortgage with the best terms or a top-tier rewards card, Ulzheimer suggests you aim for at least a 760 — and higher is safer.
Morris Armstrong of Connecticut, founder of Armstrong Financial Strategies, likes having a score cushion. “I think that if your numbers are above 780 that you are fine and should not worry. That is still an excellent number, but if you are competitive — and I understand that it is now trendy — then you will want to achieve a higher bragging-right number.”
A “perfect” score — an 850 on the most commonly used scale — requires a credit history spanning many years and having few or no credit missteps. And, as far as lenders are concerned, someone with a 780 or so is every bit as likely to repay borrowed money as someone with an 850.
Ultimately, your score is a tool to get approved for credit products that help you achieve your goals. Reaching those goals is more important than obsessing about a couple of points on your score.
Check your credit health
If you’re not sure where your credit score stands, there are plenty of ways to check it. Many personal finance websites and some credit card issuers offer scores to consumers for free.
If you have years of on-time payments and use your credit cards fairly lightly, you probably have a decent score. If you are younger, it may take a little time to build a great score, and learning about how credit works is a good way to do that.
If there’s a certain product you want, say a mortgage or a travel rewards card, you can often get a general idea of the minimum score needed for approval. It’s best to be comfortably above that because your scores fluctuate a bit depending on your recent financial activity.
Habits that help
Healthy credit habits, practiced consistently, build high scores. For best results:
- Pay on time, every time. Payment history is the largest factor that makes up your credit score, so pay attention to it.
- Use only a small portion of your credit limit. The next biggest influence on scores is “credit utilization,” your balance relative to your credit limit on each card.
- Keep cards open unless you have a compelling reason — such as fees you think are not worth it or poor customer service — to close them. You want to show a long history of using credit responsibly.
- Space credit applications at least six months apart.
- Check your credit score at least monthly to see how your spending and payment behaviors affect your score.
And if you make a mistake? Expect to see it reflected in your score. But you can speed recovery by getting back in the routine of the healthy habits above.
Some mistakes fade more quickly than others. A late payment can damage your score for some years. High credit utilization, on the other hand, stops hurting your score once your lender reports you’ve paid down the high balance.
You can try to squeeze out every possible point, but if your score is comfortably high, it’s unlikely to boost your borrowing power. Once you’re well into the worry-free zone, you can cruise if you want to.