We partnered with American Express to help you achieve your credit score goals so you can be prepared for whatever life throws at you.
No matter what your life goals are, you're likely going to want to make some big purchases throughout the years. Perhaps you're looking to become a homeowner, start your own business, or buy a car one of these days — regardless, these big life moments also come with big price tags. Meaning, you'll need to have a credit score that gets you the best interest rates and loan options possible whenever the time comes.
But how do you know what that credit score should be or how to get there? We chatted with financial educator Berna Anat to get the skinny on all things credit score so you can approach these big buys with confidence — and excitement!
Is there an ideal credit score range?
Let's start with some distinctions. If you fall in the "Very Good" range (between 740 and 799) or the "Excellent" range (800 to 850) as defined by FICO, you're going to get the best rates for credit cards and loans — i.e. you're pretty much golden. A "Good" credit score falls within the range of 670 to 740 — with a Good FICO score, you'll typically qualify for most credit cards and loans, though you may not get the absolute best interest rates or terms. This isn't a hard and fast rule — you can still have options with a "Fair" credit score, which according to FICO is between 580 and 669. If your score comes in under 580, it's considered "Poor."
OK, now that we've gotten the vocab out of the way, here's a reminder: a perfect credit score is not the ideal credit score. "A perfect score of 850 is honestly like getting an A++ when you're fine to graduate with a C+ or a B," Anat said. "A credit score can be a great tool to unlock certain things, but it's not a life grade. It's not a reflection on your entire financial life or capabilities as a person."
Anat stressed that it's important to ask yourself the why behind improving your credit score. "What are you trying to do with your credit score?" she said. "Are you just starting out, and simply trying to build your credit? Are you trying to qualify for access to auto loans, student loans, or mortgages? Are you aiming for the absolute best interest rates possible? Do you just want to flex on your haters and number drop casually at your next party?" Try to clearly define the goals that go hand-in-hand with your credit score.
To get started, you can take advantage of Score Goals from American Express® MyCredit Guide, an awesome (and free!) resource that can help you raise your credit score. After you enroll, it works by giving you personalized recommendations so you can set realistic goals and hold yourself accountable. The best part: it's free and available to everyone (not just American Express customers), and it won't hurt your credit score.
What steps can I take to build a better credit score?
"Unfortunately, low credit scores don't heal on their own, and there are no cheat codes to skip ahead," Anat said. "And the truth is, building a credit score isn't usually sexy or exciting: it's really about understanding what you need to do consistently and on what timeline, and then banging that drum month after month and watching your credit score tick up bit by bit."
First things first: pay off your balances on time. Period. It's the most effective way to up your credit score. The next most important factor is how much you owe on "revolving" credit, meaning your credit cards. "Lenders don't want to see you maxing out your credit cards," Anat said. "They'll assume you're less likely to pay it all back. The general rule is to keep your credit usage to under 30 percent. This means, if you have a $1,000 credit limit, you should basically pretend you only have a limit of $300, and never let the balance go beyond that. And if you're an overachiever like me, you stick to a 10-percent credit usage." Essentially, try not to buy something with your credit card unless you're sure you can pay it back in a relatively timely matter."
Do different milestones require different credit scores?
Not really — there's no specific number that will get you a good rate for an auto loan versus a mortgage loan versus a small business loan. There are many different other factors that come into play, like the lender you're using, the length of the loan, and down payments. "The overall idea is this: the higher your score, the more 'trustworthy' you seem to lenders, and so the more 'freedom' and perks they'll give you," Anat said. A lower score means that lenders see you as less likely to pay them back, so you'll get more restrictive terms and higher interest rates.
That said, Anat said there are some "start here" milestones for certain types of home loans. For example, you can qualify for an FHA (Federal Housing Administration) home loan with a score of 500, though it would require you to give a bigger down payment, and you could qualify for a government-backed home loan with a score of 620. Auto lenders are often quite motivated to move their inventory, so you may have more flexibility in searching for a car loan with a score under 600.
How do I maintain a good credit score once I get there?
Maintaining your credit score is all about history. "It's like your credit report card," said Anat. "Have you paid back your debts on time? Have you missed any payments? Have any of your debts gone into collections? Lenders want to know how responsible you are when you have credit, so they can predict what you'll be like when they give you credit." The best thing you can do for your credit score is make your payments on time. If you can't, communicate with your lender to create a plan and come to an agreement so that you don't get any negative marks on your payment history.
How do I set up a plan of action to get to a good credit score?
"Creating an effective and engaging plan of action to build a credit score is everything," Anat said. "If you need to get better at paying on time, pinpoint exactly when you'll be making those payments, and — most importantly — exactly where that money is coming from."
Equally important is finding resources you can lean on to help keep you on track. Score Goals is a great tool to help you work towards improving your credit score and start working towards better credit health.
Finally, Anat's number one tip: "Make sure you're injecting some type of consistent fun, acknowledgement, and tangible measurement so you can see and celebrate your progress." So while working towards a better credit score can take some planning and effort, it's so worth it in the long run.
Click here to learn more about Score Goals from American Express MyCredit Guide and sign up now.