Take Your Credit From Good to Great

Understanding Credit Score Ranges

Before you work on improving your credit, make sure you understand where your credit score is now and where you want it to go. According to the widely used FICO score model, good credit scores are between 670 and 739, very good credit is 740-799, and exceptional is 800-850. Of course, what constitutes “great” credit is subjective, but the entry point is generally considered as 740 and up. Scores in this range qualify you for the best lending rates and classify you as an ideal customer.

How to Move Your Credit to Very Good

There are two factors that massively impact your credit and can take it from good to great: your credit utilization ratio and payment history. Your credit utilization accounts for 30% of your total FICO credit score. It’s calculated by taking the total percentage of your credit card balances divided by your total credit card limits. If you have a home equity line of credit, that balance is often factored in, too. Note that your credit utilization ratio focuses exclusively on revolving credit accounts—when you borrow, pay down, and borrow again with no fixed end date.

Improving Your Credit Utilization Rate

Focus on moving your credit utilization ratio to under 10%, meaning you’re using less than 10% of the credit available to you. For example, if you have a total of $10,000 available to you between all of your credit cards, you regularly only borrow under $1,000.

One way to lower your utilization ratio is to pay down any credit card balance before it’s reported to the three credit bureaus (Experian, Equifax, and TransUnion). Credit card companies typically report the balance on your statement closing date or thereabouts. Check your card statement(s) to find out the closing date; it’s the same date every month. If you can swing it, aim to lower your card balance as much as possible before your closing date. Here’s an example: Say your statement closes on the 5th and your payment due date is the 28th. You want the reported balance to be $100. Make a payment by the 4th that brings the balance to $100 or less. Your low balance will be reported to the bureaus, immediately lowering your credit utilization rate and giving you the maximum possible boost.

Another way to lower your credit utilization rate is to request a credit limit increase on existing, low-debt cards. Remember: paying off your balance in full every month is the best way to improve your credit score. Carrying a balance does not help. So, only request a credit limit increase if you’re disciplined enough not to spend to the new limit—or have the resources to pay it off monthly.

Perfecting On-Time Payments

Payment history accounts for 35% of the FICO score, and to secure a “great” credit score, your payment history must be 100% perfect. Even a single late payment within the last 7 years can pull your score down, especially if you have a 30-day late payment.

The easiest way to ensure you always pay on time is to set up auto pay for every account. Make this automatic payment cover at least the minimum payment, if not the entire balance. If you’re not sure whether you can cover the entire balance, go for the minimum to cover your bases; you can always adjust and pay more as needed. But at least you’ll never miss a due date.

If the timing of due dates makes it difficult to use auto pay, call your credit card company customer service and see if you can adjust the dates to work better with your paychecks or monthly budgeting.

Focusing on improving your credit utilization rate and on-time payment history is a surefire way to take your credit score to the next level. Of course, there are other factors that impact your credit score. Namely the length of credit history (15%), credit mix (10%), and new credit (10%). But credit utilization rate and payment history are the two biggest levers and improving them is straightforward, too. Start by checking your credit utilization rate and setting up auto pay on all your cards. Then, wait for your great credit to follow.