If you care about keeping hundreds or even thousands of extra dollars in your pocket by securing a lower interest rate on a loan or a credit card, if you want the ability to borrow money when the need arises, or if you want your debt history to reflect positively rather than negatively on you in the eyes of a potential employer or landlord, then there’s good reason to be aware of your credit score — and the steps you can take to increase it.
Credit score is a figure calculated by tracking a person’s financial activities, including their payment histories on loans (home, car, education, etc.), rent, credit cards, utility bills and the like. Lenders use it to gauge a person’s creditworthiness, wherewithal to repay a debt and general financial responsibility. Credit scores typically are indicated as a FICO score (FICO is short for Fair Isaac Corporation). Three credit bureaus, Equifax, Experian and TransUnion, generate credit scores for a person, and those scores typically range from 300 to 850.
“They keep a file on you, essentially,” explains FPA member Michael Ciccone, a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional with Tradition Capital Management in Summit, NJ.
Generally, a FICO score of 670 or above is considered good, a score of 740 or above is considered very good and a score of 800 or above is deemed exceptional. Scores tend not to differ much, if at all, between credit bureaus. The higher a person’s credit score, generally speaking, the greater their leverage to borrow money or to secure a line of credit, and to get favorable terms on those loans or lines of credit. On the other end of the spectrum, the lower a person’s credit score, the less leverage they generally have to obtain a loan or line of credit with favorable terms.
In short, your credit score matters. “It impacts some really important aspects of a person’s life — home ownership, car loan, credit cards, even job and rental property applications,” says Ciccone.
Want your credit score to work for you, not against you? The following recommendations from financial professionals can help to bolster a sagging credit score or make an already strong score even better.