This week I want to focus on boosting an average score so you can start getting the best deals when it comes to borrowing money or buying things that require credit checks. Scores range from 300-850 and the average credit score in the U.S. was 700 in 2017. Your credit score is how lenders determine whether or not they should do business with you. Here are the ranges according to Experian:
- Excellent 800+
- Very Good 740-799
- Good 670-739
- Fair 580-669
- Poor > 579
There is always room for improvement and moving into a Very Good or Excellent range will save you hundreds or thousands of dollars when it comes to big purchases. Here are some tips for how you can keep moving that score higher.
Tip #1: Keep your options open
You may have an old credit card that you have worked hard to pay off but that doesn’t mean you should close it. The length of your credit history will account for 15% of your FICO score so keeping an old card open makes sense.
Having a paid off card will decrease your credit card utilization ratio if you keep it open and that is a good thing. If you close it, your total available credit will drop and the ratio of what you use will go up.
Since the length of credit history and a low utilization rate are important it’s wise to keep your cards open as long as you can. Things like student and car loans will drop off no matter what once you pay them off. While this may temporarily cause a dip in your score there isn’t much you can do when it comes to that kind of debt so focus on the ones you can control.
Tip #2: Consider a balance transfer
If you are trying to make progress when it comes to paying down your debt but feel like you are treading water due to high interest rates you might want to consider a balance transfer. Some cards are available with 0% APR for transfers over a period of time. After that you will pay their regular interest rate on the balance left over. However, some offer 12, 15 or even 18 months to pay off that balance. If you are on track to pay down your debt this could help you save money and stay the course.
Be careful not to play the balance transfer game and continue to open cards and move the debt around. This strategy works when you are aggressively trying to pay down debt since the rate at the end of the period is usually high and you will get stuck at some point when you can’t move it anymore.
Depending on the size of your balance you may be able to move all or just a portion of your highest interest rate debt over to the new card. It is unlikely you will be approved for $10,000 or more if you have an average score and you won’t know what you are approved for until they run a “hard pull” on your credit and process the application. Do your homework before trying this but it can be a great option if getting out of debt is your goal.
Tip #3: Limit hard pulls
When you apply for a credit card, loan, or mortgage the lender will do what is known as a hard pull or hard inquiry on your account. While this may only impact your score by a few points it matters if it moves you from average to fair/poor territory. Also, if you apply for a lot of credit cards at once this will have a bigger impact.
A hard pull might not drag your score down by much but if you apply for a lot of loans or credit cards at once it will add up. Lenders will think you are risky and short on cash which may lead them to decline your request.
A “soft” pull is what happens when you or someone else like your employer does a background check to see your credit score. It will not drop your score the way an actual request for credit does. If you are trying to improve your average score using a credit monitoring service might be a good idea. That way you can track progress on a regular basis.
To make sure your score is accurate you should always check for errors (1 in 5 reports has one). If you have some tips for ways you improved your credit please leave them in the comments!