If you have tried applying for a loan or mortgage then you may have heard the term “credit score” more often than usual, today you will learn What is an Excellent Credit Score.
Do you know what a credit score is?
A credit score is a range of numbers that is used to show how creditworthy you are. It helps your lenders to know your ability in repaying the money being lent to you. An excellent credit score is the highest range of credit score you can have. It can go a long way to help you sort a lot of financial problems.
An excellent credit score is the best credit score and it makes it easy for you to apply for the best credit card, a loan, mortgage, or any credit. Financial Institutions or lenders check your credit record for your credit score to determine how creditworthy you are hence knowing if you are capable of paying back any money lent to you.
An excellent credit score is one factor that qualifies you for any credit.
Now, one or more of these questions may be going through your mind;
- How do I know if I have an excellent credit score
- How do I get an excellent credit score
- How can an excellent credit score help me
Do not worry, this article will answer all your questions about an excellent credit score.
How to know an excellent credit score
Credit scores are calculated differently depending on the credit scoring model. Two known scoring models are used by lenders to know one with an excellent credit score; FICO (Fair Corporation) and VantageScore.
They derive credit scores from credit reports obtained from the three National Bureau- Equifax, Experian, and Transunion.
FICO and VantageScore ranking scores differ a bit but a lot of lenders make use of FICO scores. You can check if you have an excellent credit score from their ranking below;
- Very poor – 300 to 579
- Fair – 580 to 669
- Good – 670 to 739
- Very good – 740 to 799
- Excellent – 800 to 850
- Very poor – 300 to 499
- Poor – 500 to 600
- Fair – 601 to 660
- Good – 661 to 780
- Excellent – 781 to 850
You can see that an excellent FICO score is the highest three-digit number of the score that ranges from 800 to 850 while that of VantageScore is 781 to 850. However, there are key factors considered by these two scoring models when credit scores are calculated.
FICO considers the following;
- Payment history(35% of your score) shows how long it took you to pay back your past credit.
- Credit utilization rate(30%): This is done by comparing your total credit limit to the total amount of credit you are using.
- Length of credit history(15%): the period you’ve had credit.
- New credit(10%): how often do you open accounts and apply for credits.
- Credit mix(10%): the types of credit products you have e.g. credit cards, loans, finance company account, etc
- Payment history
- Total balances
- Types and duration of credit and credit limit used
- Available credit and recent inquiries.
How to get an excellent credit score
If you have a poor, fair or good credit score and you want to get an excellent credit score, you should strive to raise your credit score. Here are a few tips that will help you fall within the highest credit score range;
Make payments on time
A great way to increase your credit score is to make your payments on time. Your payment history is the most important factor that determines your credit score. Always make your payments on time before your grace period is due. Mark your calendars for reminders or set up an autopay to ensure on-time payment.
Optimize your credit utilization ratio
Credit utilization refers to the balances you owe on your credit card compared to your credit limit. Your credit utilization shouldn’t be more than 30% if you want an excellent credit score.
Know when to take on new debt
It is not advisable to take on a new loan when you have an outstanding balance. This can increase your debt amount and decrease your credit score. Credit scoring models usually assess your credit card balances and outstanding loan when calculating your credit score. However, you can apply for new debt under favorable circumstances.
Pay in full
When making payments of your debt or balances every month, you should pay in full. This is because paying in full can help reduce your credit utilization ratio and increase your credit score. Do not have balances on your credit and even if you do, pay it up in full immediately.
Don’t open a new account always
If you apply for a credit card or a loan and you get rejected, it appears on your credit report and may temporarily reduce your credit score. When this happens you may want to open a new account, think through this decision as an old account can also boost your score.
Monitor your credit score
Do not assume that you have an excellent credit score, always check on your credit score. Keep an eye on your credit report for errors that may affect your credit score. Know when your credit score is poor so you can take steps to improve it.
How can an excellent credit score help you
An excellent credit score can help you in so many ways. If you have a poor or fair credit score, your chances of receiving a credit or loan are slim. But with an excellent credit score, you will be able to get loans including competitive loans from lenders, mortgages, and any credit you apply for.
Moreover, you receive the best Annual Percentage rate from lenders if you have an excellent credit score. This allows you to pay little or no interest when you have a balance. With an excellent credit score, you can get the best credit cards. Many credit cards require that you have good or excellent credit before your credit card is approved.
Other benefits that come with an excellent credit score and probably a good credit score include; getting competitive rewards, luxury travel bonuses, better rates on car insurance, 0% on your APR for some periods, and many other added benefits. An excellent credit card can also help you when making new purchases. Also, if you want to get out of debt with a balance transfer card, having an excellent credit score makes the process easier and faster.
It is important that you know that having an excellent credit score is not a guarantee that your credit card application or other loan application will be approved. Card issuers and Lenders consider other factors and not just your credit score.
Did you apply for a credit and you were told you need an excellent credit score because your credit score is poor? Having an excellent credit score helps you apply for credit cards and loans easier and faster. If your credit score is excellent, make sure to keep it that way.If you haven’t checked your credit score and you are planning to apply for a loan or credit, go check it now and follow the tips on how to improve it if it is poor. Read through this article to know how to get an excellent credit score and why you need one.