Credit Score Blueprint | How to Build a 780 Credit Score in 1 Year
What is a Good Credit Score?
When it comes to managing your finances, having a good credit score is essential. A good credit score gives you access to better loan terms and makes it easier to secure a mortgage, auto loan, and other types of financing. But what exactly is a good credit score?
Your credit score is a three-digit number that is calculated based on the information in your credit report. It is used to assess your creditworthiness, which lenders use to determine whether or not to approve you for a loan or extend you credit. The higher the score, the more likely you are to be approved for the loan or credit you’re seeking.
The most commonly used credit scoring system is the FICO score. This score ranges from 300 to 850, with 850 being the highest possible score. Generally, a score of 700 or above is considered to be good, and a score of 800 or above is considered to be excellent.
The good news is that there are several steps you can take to improve your credit score. The first step is to check your credit report for errors or inaccurate information. You can request a free copy of your credit report from the three major credit bureaus: Experian, Equifax, and TransUnion.
Once you’ve reviewed your credit report, you can begin taking steps to improve your score. This may include making on-time payments, paying down debt, and limiting how much new debt you take on.
It’s important to note that it can take time for your credit score to improve. It’s important to be patient and consistent with your efforts.
Key Points:
• Your credit score is a three-digit number that is used to determine your creditworthiness.
• The most commonly used credit scoring system is the FICO score, which ranges from 300 to 850.
• A score of 700 or above is considered to be good, and a score of 800 or above is considered to be excellent.
• You can request a free copy of your credit report from the three major credit bureaus.
• To improve your credit score, you should make on-time payments, pay down debt, and limit how much new debt you take on.
People Also Ask:
Q: How can I check my credit score?
A: You can request a free copy of your credit report from the three major credit bureaus: Experian, Equifax, and TransUnion.
Q: How long does it take to improve my credit score?
A: It can take time for your credit score to improve, so it’s important to be patient and consistent with your efforts.
Q: What is the highest credit score possible?
A: The highest possible score is 850.
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1. On-Time Payment History (35%)
So the first and most important measure used to calculate your credit score is your on-time payment history which accounts for 35% of your score. Now obviously paying your card or loan off on time is crucial if you want to avoid paying ridiculous interest rates and late fees but it’s also necessary if you want to build an excellent credit score. So credit bureaus and lenders view your payment history as a percentage and they calculate this by taking your number of on-time payments / the total payments that were due. For example, let’s say you had one credit card for three years meaning that you had 36 payments due over the life of this card. If you only made 35 of these payments on time then 35/36 would give you an on-time payment percentage of 97.2%. Now some of you may be thinking that 97% is fantastic but you would be wrong!
2. Credit Utilization Percentage (30%)
The second most important measure used to calculate your credit score is your credit utilization which accounts for 30% of your overall score. This is one of the most commonly overlooked factors that most people are completely unaware of. Your credit utilization is essentially a measure of how much of your available credit are you actually using on a regular basis. So let’s say you had a $5,000 credit limit and you spent $3,000 of that. 3000 is 60% of 5000 meaning that you have a utilization rate of 60%. Again some of you may think that this isn’t that bad but a utilization rate of 60% is absolutely horrible and will put you well into the red category. In fact, it is recommended that you keep your utilization below 5% in order to have a healthy credit utilization rate.
3. Average Age of Credit (15%)
The length or age of your credit history is extremely important if you want a good credit score and that’s why it is so important to start as soon as you can. Starting your credit history now means that in a few years when you do need to apply for a loan, not only will you be approved but you also be able to get the lowest interest rate possible. Most credit bureaus want a credit history of 9 years but personally, I believe this is absolutely unnecessary unless you are going for some astronomical 850 credit score which is nearly impossible.
4. Number of Lines of Credit (10%)
The 4th measure for calculating your credit is the number of credit lines that you have open. Now I talked about this earlier but the number of credit lines really enhances the factors that we already discussed in this video. For example, by having more lines of credit, you will increase your utilization rate since the total amount of credit available to you is greater. If you only have one card that has a $1,000 limit then the total credit available to you is just $1,000 meaning that if you spend $100 in this card then your utilization rate is 10% which as we talked about earlier is not good.
5. Number of Hard Inquiries (10%)
So the fifth and final factor used to calculate your credit is the total number of hard inquiries. So if you aren’t familiar with this term, a hard inquiry is essentially a marking that shows up on your credit report when you apply for a new line of credit. For example, if you open a new credit card or apply for a car loan then this will temporarily show up on your credit report as a hard inquiry.
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