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What Makes a 700+ Credit Score?

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whatisacreditscore

Three little numbers known as a credit score will determine a lot of your financial life. Credit scores help lenders assess your “risk factor” and unlike high-school girls, lenders aren’t interested in dealing with a risky bad boy. The lower your credit score, the more likely they think you are to default on a loan, make late payments or jet off to a foreign country and assume a new identity.

I first learned my credit score in a small, back-alley realtor office in New York City. My roommate and I were struggling to find a clean, safe, rodent-free apartment with an affordable price tag for two young twenty-somethings.

The realtor insisted I fork over $30 to run a credit report for my prospective landlord. After giving her my weekly food budget, I was informed I had a score in the 700s – which was apparently good enough for my landlord-to-be to deem me responsible.

At the time, I had no idea what the score meant or where it had come from.

The answer: through the diligent use of a credit card in order to establish credit history.

What goes into a credit score?

Fair Issac and Company (or FICO) – who owns the definition and scores credit – uses five different factors to assign you a credit score.

  • Payment history (35%): do you make payments on time? Missed payments can crush your credit score quickly

  • Amounts owed (30%): the more debt you have, the lower your score.  But even more important than the total amount you owe, is the amount you owe in relation to your total credit limit –which is called utilization.  If you max out every card you have, you will get punished

  • Length of credit history (15%): the longer you’ve had credit, the better

  • New credit (10%): this looks at how many new accounts you have opened, and many times you have applied for credit.

  • Types of credit used (10%): the more types of credit you have, the better.  So, someone who has successfully managed a car loan, a mortgage and a credit card would score better than someone who just managed a credit card successfully

What’s a good score?

The higher your score, the better the deals you can get from banks and lenders. FICO typically calculates scores between 300 and 850. You should strive for a 700+ credit score.

Why do I want a score above 700?

A score of 700 essentially puts you in the “prime” group and open up opportunities that aren’t available to other consumers including:

  • When you buy a home, you will get the best mortgage rates

  • When you buy a car, the 0% financing from manufacturers will be yours

  • When you apply for a credit card, all of the best bonus and introductory offers will be waiting for you

  • When you apply for auto insurance, you will be considered more responsible – and get better rates

  • When you apply for a job, you will easily pass screening that regularly includes credit scoring

People in Club Prime are diligent about paying on time, use less than 30% of their available credit (also called utilization) and have at least a three to five years of credit history. They also tend to have a good mix of credit instead of just credit cards or just student loans and don’t apply for lines of credit on a regular basis.

Why am I not “prime”?

There are two common reasons for why you may not have a credit score above 700.

  1. If you’ve shunned credit or are young and just entered the workforce then you don’t have enough history to have established a high credit score.
  2. If you’ve been using more than 30% of your utilization ratio, making late payments or missing your payments entirely, and applying for new forms of credit are all factors that can keep your credit score from moving into 700 range.

Check out 6 simple steps for improving your credit score.

Don’t be discouraged by a low score

If you’ve struggled with your financial situation, don’t be discouraged by a low credit score. They are fixable. It may not be easy at first, but taking simple, actionable steps you can begin rebuilding your score and eventually become a member of Club Prime.

Do you have a story to share about credit scores? Let us know in the comment section or email us at [email protected]

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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3 Ways to Build Your Credit History from Scratch

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Meet Katie. Katie is a role model of financial health. She’s never overdrawn her bank account, always pays her bills on time, doesn’t carry any student loan debt and has diligently used one credit card for four years.

When Katie went to check her credit score, she discovered she was a thin file meaning her years of responsible financial behavior didn’t do much to boost her credit score. In part, Katie’s lack of diversity in her credit history could produce a thin file. Her credit card lender also might not report her card to all three credit bureaus.

Even though Katie is financially responsible, she still has to do some work to build her credit history.

Why you need credit history

If you ever plan to make a purchase you can’t buy outright in cash, such as a home, car or education, then you’re going to need a loan. Lenders want proof that you’re reliable; otherwise you may get hit with high interest rates or declined for a loan.

How do you establish (or rebuild) credit history?

To establish credit history, you need to have – you guessed it – a form of credit. Credit could come in the form of student loans, credit cards, home mortgages or a variety of other ways.

College credit cards

For young adults – especially college students – it’s relatively simple to begin creating a credit history. They can apply for a credit card (perhaps by having a parent co-sign) or take out a loan to help cover the cost of education. You can find a list by filtering for college students on our Cash Back Rewards page.

If you made it to later in your twenties with no debt, no credit cards and no loan of any kind – well congrats – but the time may have come to establish credit history.

Secured Cards

You can still open a credit card by applying for a secured card. A secured card is ideal for people who have no credit, are not students or have recently filed bankruptcy. Typically you provide a deposit (usually a few hundred dollars) and then your credit limit will be a few hundred dollars.

By simply making one purchase a month and paying it off on time and in full, you’ll begin to establish a line of credit and later be able to apply for other lines of credit and increase your “types of credit” factor in your credit score.

Store Cards

If you’re working on rebuilding credit, you can also consider applying for a store card. Banks are more likely to approve consumers with much lower scores through a store card than if the same consumer walked into the bank to apply for a credit card.

Protect your credit

Your credit history and score are huge assets to your financial health. You need to be diligent about ensuring they stay in good shape. Consider these tips the financial equivalent of eating your fruits and veggies:

  • Always pay on time – late or missed payments will cost you dearly

  • Try to keep your credit used below 30% of your available credit (ie: if your available credit is $1,000 then only spend $300)

  • If you apply for a store card to increase your credit then immediately put in the freezer (literally if you have to) and avoid spending

  • Be sure to check your credit reports for accuracy and signs of fraud – you’re entitled to one free report per year from each of the three credit bureaus

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Get Personal Loan Offers
Up to $50,000

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Won’t impact your credit score