Credit scores are one of the unique financial tools used in the United States to determine if you have good or bad credit. It’s a number lenders use to help them decide how likely it is you’ll repay them if they give you a loan or a credit card.
A higher number indicates you’re financially responsible and will pay them back. A lower number means it’s riskier to loan to you based on previous loan and repayment history.
Having a good credit score is very important in the US.
What is a Good Credit Score?
The numbers can vary slightly, depending on who you ask, but here is a breakdown of good and bad credit scores.
- 300 – 629 BAD CREDIT
- 630 – 689 FAIR CREDIT
- 690 – 719 GOOD CREDIT
- 720 – 850 EXCELLENT CREDIT
How Long Does It Take to Build Credit?
You can build credit very quickly. Once you get your first loan or credit card, you’re on your way.
A new credit score is based on a very small sampling of your financial history and has the potential to be unstable. For example, if you’re just starting to build your credit and miss one credit card payment, or you’re late paying your cell phone bill, your score will drop.
Building a really good credit score is based on having a solid track record of paying your bills on time and being financially responsible. That could take anywhere from three to five years to accomplish.
How Can I Build Good Credit?
Your credit history starts to build as you increase the amount of credit you have plus the number of on-time payments you make. Therefore, it’s important to know when your bills are due each month and not to miss, skip, or be late making them.
This includes your rent, cell phone and credit card bills, student loans, and any other debt you may have. Here are a few other ways to build credit and to make sure it keeps improving.
- Only borrow what you can afford. Having a credit card isn’t permission to go on a shopping spree. Create the habit of only charging what you can afford to pay off each month. This habit lets lenders and creditors know you are a responsible borrower.
- Only use a small portion of the credit you have available. Your credit score will suffer when you run up big credit card balances and don’t pay them off. Keeping your balance below 30% of the credit limit is best for building good credit.
- Start with only one credit card. Don’t open too many credit cards too soon. The more credit you have, the more tempting it is to use it. Plus, too many credit cards can negatively affect your credit score.
- Make all your payments on time. Like we talked about above, it’s important to know when your bills are due. Pay them in full and on-time each month.
- Pay your credit card balance in full. This one is especially important. Paying off your balance each month shows that you are financially responsible. Lenders and creditors like to see that and it will reflect positively on your credit score.
- Keep your accounts open, don’t close them. The longer you have the credit, the better it is for your score. Leave your oldest accounts open. Even if you don’t use them, it’s best to leave them open and paid off. It will help improve your score.
What Are the Benefits of Having Good Credit?
Establishing a good credit score will help you save money and make your financial life much easier. Here are some ways you will benefit from having a good credit score.
- Lower interest rates on credit cards and loans.
- Better chance for credit card and loan approval.
- Easier approval when it comes to renting a house or apartment.
- Better car insurance rates.
- Better deal on your cell phone. Good credit could save you from having to put down a security deposit.
- Could save you from having to pay a security deposit when you set up utilities, like your water and electricity.
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