FICO® scores range from 300 to 850, higher scores being better. The national average is around 700, and anything above that level is generally considered good credit. Anything over around 760 will qualify you for the best interest rates on most loans and get you any revolving credit card or line of credit you want – provided your income and other qualifications are also strong.
So if a 760 gives you pretty much everything you need, it might seem odd that I’m talking about reasons to break the 800 barrier. However, there’s a good reason why I encourage you to aim a bit. upper. While a score above 800 isn’t necessary to get the best credit terms, it’s good to have a cushion.
In other words, if you have a score of 800, you can open a new account, apply for new credit, or charge a major purchase without worrying about leaving the next level. All of these things can be expected to cause your credit score to drop slightly, so it’s nice to have a margin of safety to absorb minor temporary credit issues.
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Save thousands on your next home
Perhaps the most important reason, at least in terms of dollars and cents, is that a top-notch credit score can save you thousands of dollars on your mortgage.
The reason is that while mortgage rates are generally low these days, the best rates are reserved for borrowers with prime credit scores. And you might be surprised at the savings that can result from a seemingly small difference in mortgage rates. While these rates certainly change over time, here’s a look at the 30-year average fixed mortgage rates in the United States by credit rating, and what that might mean for you as a borrower, at the time of writing. This article:
As you can see, a senior borrower would save over $ 11,000 over the life of a 30 year mortgage compared to someone who is only at the next level. If your credit is currently at a lower level, the money you save by establishing a prime credit rating would be even higher.
Get the credit card of your choice
A great credit score can get you any credit card you want. For example, if you see an excellent balance transfer offer, you should be able to take advantage of it. The same can be said if you see a great signup bonus or one travel credit card with fantastic benefits.
Although credit card issuers typically do not publish their FICO® minimum score standards, reports indicate that no credit card issuer requires more than 750 or more. An 800 or higher puts you well in the realm of elite applicants that credit issuers would like to do business with.
Get the best auto loan you can
Just like with mortgages, auto loan interest rates depend on the credit rating of the borrower. In fact, there is even more of a gap between the rates given to customers with prime credit and everyone else.
The average APR on a 60 month new car loan is currently 4.72% to a buyer with a FICO® score above 720. For someone in the next level (690-719), the average APR is ‘amounts to 6.044%. To illustrate the potential difference, a borrower with poor credit can expect to pay an APR of 17.147% on the same car loan.
Save money on your insurance
At first glance, insurance may not seem like a credit-linked product. After all, when you buy auto or home insurance, you usually pay your premium up front. In other words, no credit is given.
However, insurance companies generally view credit scores as a sign of overall personal responsibility. For example, a person with a FICO® 800 score is less likely to be in a car crash, accidentally burn down their house, etc. Whether or not you agree with this logic, the reality is that many insurance companies use credit scores as part of the premium setting process. So, a higher credit score can save you a lot of money on your insurance costs.
Increase your chances of landing the job of your dreams
As a final reason to maximize your credit score, it’s important to note that many employers will perform an applicant credit check before extending a job offer. This is a controversial use of credit score to say the least, but the logic is the same as with insurance companies – better credit is statistically correlated with increased personal liability and reliability.
How to get there
The most important step in maximizing your FICO® score is knowing how the scoring method works. By understanding the information that makes up your FICO® score and how it is used, you can take appropriate steps to increase your score over time. With some smart strategies, you might be surprised at how quickly your score can increase.