If you have ever tried to make a large purchase on credit, then you already know how important it is to have a good credit rating. Having a decent score is, after all, one of the most important aspects of a well developed financial plan. A good credit score can mean the difference between being living comfortably and living paycheck to paycheck.
Why Having a Good Credit Rating is Important
Credit scores were developed as a way to track, and evaluate, how an individual handles the credit that is given to them. It is kid of like the report card you would receive while in school. Some people would excel, and be at the top of the class, while others may fall below the class average.
What is a Good Credit Score
In the absence of any other relevant factors, any score above 720 is generally considered to be a good score. While this may seem relatively straightforward, each of the major credit bureaus have their own criteria when developing a good credit rating.
Credit Score Range
(most generally accepted scale)
- 760 to 849 – Excellent
- 700 to 759 – Great
- 660 to 699 – Good
- 620 to 659 – Average
- 580 to 619 – Poor
- Below 579 – Very Poor
How to Improve Your Credit Score
When it comes to credit ratings, try and put yourself in the shoes of a typical credit card lender. Lenders, of course, will always want you to pay off your debt, yet they do not want you to do so too quickly. The best thing that could happen for them is for you to make timely minimum payments each and every month forever.
Credit bureaus, it would seem, also prefer this type of ‘borrow and pay back slowly’ type of mentality. As such, here are a few things you can do to help build a good credit rating:
Make Timely Payments – As previously mentioned, credit card lenders will remain extremely happy as long as you are making the minimum payments each and every month. Other vendors, however, expect you to make your payments in full, as well as on time.
Have a Blended Mix of Debt – If the only type of debt you have is credit card debt, you credit rating may suffer. The major credit bureaus like to see a wide range of different types of debt. It shows them that you are capable of paying off your obligations.
Do Not Borrow Too Much – While it is certainly tempting to max out your credit cards each and every month, it is crucial that you keep at least 50 to 60% of your available credit free. Not only will your monthly payments be much more manageable, you will also typically be viewed as less of a credit risk.
Building a good credit rating has more to do with financial knowledge that anything else. Once you know the keys to improve your credit score, all you need to do is implement your plan.