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A person’s overall financial health is often evaluated using a single criterion: whether or not they have a good credit score.
Your credit score comes into play when you buy or rent a home, finance a car, apply for a credit card, or even sign up for cell phone service. But what is a good credit score during a pandemic, and how do you go about getting one? We asked experts to weigh in on how lenders evaluate your credit and what’s a good credit score to aim for.
What Is a Good Credit Score?
The FICO scale is divided into five different ranges from “Very Poor” to “Exceptional,” so you can quickly gauge your credit health by seeing which range your score falls into. On the FICO scale, a “Good” credit rating starts at 670 and goes up to 739. But despite its name, this range isn’t what experts refer to when they use the term “good credit score.” In reality, scores in this range are typically considered average at best and are unlikely to get you the best rates on loans. If this is the case, then what is a good FICO score exactly?
“While FICO’s score matters, their score labels are irrelevant,” says Todd Christensen, education manager at Money Fit by DRS, a nonprofit debt relief organization. While those score ranges serve an educational purpose, lenders will ultimately set their own standards for what they consider a good credit score. “The only definition of a good score that matters,” says Christensen, “is whatever score will qualify you for the best interest rates and repayment terms a given lender has to offer.”
For most lenders, the best terms are offered to those with credit scores starting in the mid-700s.
The long-term financial effects following COVID-19, however, may change how lenders evaluate credit scores. As of the second quarter of 2020, 39% of banks in the United States had already tightened restrictions on consumer loans and credit card applications, a trend most experts believe will continue. Lenders may require higher credit scores than usual and could even ask for additional documentation, such as proof of stable income — a factor not included in your credit score. Those who do manage to get approved for new lines of credit will likely see lower limits than normal.
Now is a better time than ever to pay close attention to your credit score.
Credit Score Ranges
|Credit Score||Credit Rating|
Average Credit Score by Age Group
|Credit Score||Age Range|
|662||20 to 29|
|673||30 to 39|
|684||40 to 49|
|706||50 to 59|
How to Get a Good Credit Score
The best way to build a good credit score is by making payments on time, every time. You would think this is standard advice everyone knows and understands. But according to Amanda Wallace, head of insurance operations with MassMutual, many don’t. A recent study by MassMutual found that almost half of young adults didn’t know payment history had the biggest impact on their credit score. “If there is nothing else you do,” Wallace says, “just pay on time.”
Of course, extenuating circumstances brought on by the financial crisis may make it difficult or impossible to continue making your usual payments, especially if you’ve found yourself jobless due to the pandemic. But there may be relief options available to you you’re not even aware of.
“I would advise borrowers to reach out to their lender as soon as they feel they may have difficulty making a payment,” says Miriam Mitchell, senior vice president of lending at Addition Financial. “By being proactive, a borrower may find their financial institution has programs to assist during a financial crisis. The borrower may be given options such as loan deferments or modifications, ultimately avoiding delinquency, which would impact the borrower’s future credit score.”
Although making on-time payments is essential, it’s not the only action you should be taking to keep your score high. Turn the following steps into habits, and before long, you’ll see your score start to climb.
Pay on time, every time
Late payments go on your credit report after 30 days and stay there for seven years. The later they become, the worse of a hit your score will take. Make sure you’re at least making the minimum payment required by your lender every month.
Don’t use all the credit you have
Once you get approved for a credit card, it’s tempting to use the available balance to make a large purchase you couldn’t previously afford. But this will only drive up your credit utilization ratio, or the ratio of your outstanding balances to the available limit. Run your balances up above 30% of your available credit, and you’ll see points start to fall off.
Keep old accounts open and active
The length of your credit history has an impact on your overall credit score, so the longer you keep accounts like credit cards open and in good standing, the more you’ll benefit. There’s just one stipulation: You also need to keep the accounts active, or they’ll eventually be taken off your report. Make sure you’re using each of your credit cards to make at least one small purchase every month, then pay off the balance in full.
Want a quick and easy trick to bump up your credit score? Try Experian’s Boost product for free. It will give you credit for paying your utility bills on time each month, Todd Christensen says. “Equifax and TransUnion do not yet have similar products, but Boost immediately raises a user’s score by an average of 15 points or so.”
Ask for better terms
If you’ve been a good customer for a long time, many lenders will be more than happy to reward you with better terms, such as lower interest rates and higher limits on credit cards. You have to ask. Call your bank and ask about raising your credit limit (which will, in turn, drop your credit utilization ratio) or getting a better interest rate. Either way, your finances will benefit.
Be selective about opening new accounts
Every time you apply for a new loan or line of credit, a hard inquiry stays on your credit report for two years and can lower your score by a few points. Opening too many new accounts in a short period of time is a red flag to lenders, who might sense you’re having financial trouble. Only apply for new lines of credit you need, and be especially mindful if you’re preparing for a major purchase like a mortgage, where any red flags on your credit report could negatively affect the terms of your loan.
Use different types of credit
Having various types of accounts, known as a credit mix, is a good sign to lenders as it shows you can handle different types of debt responsibly. There are three main types of credit: installment credit, revolving credit, and open credit. Try to have a mix of all three — as long as you’re using them responsibly.
Monitor your credit
Twenty percent of people may have an error on their credit report. At a minimum, you should request a free copy of your credit report with each of the three credit bureaus (Experian, Equifax, and TransUnion) once every year. But now through April 2021, credit reports can be pulled for free once per week. Don’t let the opportunity to keep a closer eye on your credit go to waste. The faster you identify and respond to errors or unauthorized activity, the easier it is to prevent your score from taking a hit.
Many Americans are facing unprecedented financial uncertainty due to COVID-19. But as you take steps to safeguard your physical health, it’s important to take care of your financial health. From relief programs available through most banks and lenders to free weekly credit reports from AnnualCreditReport.com, there are resources available to help you keep your credit score up through the pandemic. By taking steps now, your credit will be in the best shape possible to help you move forward financially as we emerge from the crisis.