A Good Credit Score Range

Ever wonder what is a good credit score, and why this little three-digit number is so crucial to your financial well-being? Can it really affect your everyday life? And what kind of control do you have over it? In this guide to credit score ranges, we’ll tackle all of these questions. We’ll take a look at what your credit score means, what’s considered a good score (and what’s a bad one), how your credit score can help or hurt you, how to improve your credit score, and much more.

Credit Score Ranges at a Glance

The two most commonly used credit scores are those issued by Fair Isaac Corp. (FICO) and VantageScore, and each uses a range of 300-850. If you recently got a peek at one of your credit scores, and you’re simply wondering whether it’s a good one or not, here’s a quick look at what’s considered an excellent, good, fair, and poor credit score, according to consumer credit expert John Ulzheimer:

Bad Credit: 300-650

“A score of 650 is generally used as the dividing line between prime and subprime,” Ulzheimer says, referring to the point at which lenders consider you a much greater risk. A score below 650 means you’ll have a harder time qualifying for loans or credit cards, and may have to pay much higher interest rates when you do.

Fair Credit: 651-700

The average American’s FICO score was 695 in 2015, an all-time high. “A score of 700 gets you to about the 50th percentile nationally,” Ulzheimer says.

Good Credit: 701-759

If your credit falls within this range, Ulzheimer says, you’re likely to get approved for whatever you’re applying for. But, he adds, “There’s no guarantee you’re going to get the best deal the lender has to offer.”

Excellent Credit: 760 and above

Ulzheimer says a score of 720 is enough to get the best published interest rates on an auto loan, but the best mortgage rates are only available to people with credit scores above 760. “So, I’d define an ‘excellent’ credit score as one that ensures the best possible deals across all lending environments, which is 760 or above,” Ulzheimer says.

Below, we’ll dig in a little deeper to understand what your credit score means, why you have several of them, how they’re calculated (and by whom), and how to improve a bad credit score.

What Is a Credit Score?

A credit score is a single number that represents how trustworthy you are from the perspective of someone who would lend you money. If you haven’t proven yourself trustworthy, your credit score will be low; on the other hand, if you repeatedly show yourself trustworthy (by paying bills on time, every time), your credit score will be high.

Who determines a credit score?

In the United States, a small number of companies, called “credit reporting agencies,” are in the business of collecting information about your financial behavior. They do this by exchanging information with companies that offer financial items, such as loans, credit cards, and so forth. The agencies generally care about three things:

  1. the money you’ve borrowed
  2. the amount you owe
  3. whether you’ve been making your payments

The agencies collect this information from everyone you’re indebted to and create a picture of how trustworthy you are in terms of credit. In the United States, the three main companies engaged in this business are Experian, Equifax, and TransUnion.

Why?

Think of it this way. Let’s say three people walked up to you and asked to borrow $5. You’ve known two of them for years: one is as trustworthy as can be, and the other one is the biggest backstabber and scoundrel you’ve ever known. The third, you’ve never met before. Who would you be more likely to lend money to? Obviously, I’d loan money to the person I trusted, then the person I didn’t know, then the scoundrel.

Now, let’s say you’re a bank and three people come in and ask for a loan. You’re going to want to have some way to determine who is the trustworthy person (whom you would want to lend money to), the unknown person (whom you would cautiously loan money to), and the rogue (whom you wouldn’t want to loan money to at all). This is the exact purpose of a credit score: It’s a number that says how trustworthy – or how much of a scoundrel – you are in terms of money.

Why Does It Matter If I Have a Good Credit Score?

A good credit score can make your life much, much easier than if you have a bad credit score. You’re probably well aware of some of the reasons, but others may surprise you. When you have a good credit score:

  • It’s easier to get a loan: Most people know that bad credit can make it hard to get a mortgage, a credit card, or an installment loan. And even if you can get a creditor to give you a chance, you’ll probably be paying a much higher interest rate than you would if you had a good credit score. Bad credit also means you may have to jump through some additional hoops, such as getting a cosigner or putting up collateral.
  • It can be easier to get (or keep) a job: Though a handful of states have outlawed or limited the practice, in most cases, prospective employers are allowed to check your credit. Though they won’t see your score, they’ll still see any major problems dragging it down, such as frequently missed payments or legal issues. Those black marks can indicate a lack of responsibility and potentially cost you a job offer. Regulatory agencies can also refuse to license professionals with poor credit.
  • Your insurance rates may be lower: If you have a good credit score, you could pay less — sometimes much less — for car and property insurance than someone with bad credit. That’s because insurers’ research shows that you’re more likely to file a claim if you have bad credit, which makes you a riskier customer. A few states (California, Maryland, and Hawaii) do prohibit this practice.
  • It can help you launch a small business: Your personal credit may be all you have to go on when you need to borrow money for a fledgling business. A bad credit score can make this extremely difficult, costly, or both.
  • It can help you get an apartment: Sure, good credit is essential for getting a mortgage, but it can also help you get a good apartment. On the flip side, prospective landlords may refuse to rent to you — or charge you higher rent — if you have bad credit because they’re worried you won’t pay the rent on time.
  • It can be easier get your utilities hooked up: If you have good credit, you won’t have any issues getting the electric or cable company out to your house. But a bad credit score can mean you’ll have to plunk down a deposit or submit a letter of guarantee (this names someone who will pony up the money for your bill if you don’t pay) before the electricity, gas, water, phone, or internet is turned on.

As you can see, good credit is about more than borrowing money — it can help you in deeply personal ways, from easing your apartment hunt to landing your dream job. As if that isn’t enough, 30% of women and 20% of men say they would refuse to marry someone with bad credit — so a good credit score may even help you get hitched.

  • Related: Should You Share Your Credit Score on the First Date?

Credit Score Basics

Now that we know why your credit score matters, let’s discuss the nitty-gritty of how credit scores are calculated.

This three-digit number is based on the information in your credit report. Your credit report details how you’ve used credit in your lifetime, including whether you’ve paid bills on time, the amounts you currently owe, and how long you’ve had each account.

Simply put, your credit score takes into account all that information and assigns you a number within a certain range. Higher is better, indicating that you are less of a credit risk.

Different companies offer different credit scores

There are a handful of different credit scoring models out there. Here are the most common scores you’ll see:

  • FICO score: This is by far the most widely used credit score. Your main FICO score ranges from a low of 300 to a high of 850. FICO gathers information for its scores from Equifax, Experian, and TransUnion, which are the three major credit reporting agencies. You actually have several dozen FICO scores that vary depending on the credit bureau and the industry that’s using them, but the key takeaway is that FICO is the biggie in this business, and it’s what most people are referring to when they use the term “credit score” generically.
  • VantageScore: This model was created by the three credit bureaus to compete with FICO scores. The latest version, VantageScore 3.0, also ranges from 300 to 850; older versions have slightly different ranges. You can read up on the main differences between FICO and Vantage scores in this Credit.com article. Lenders do use the VantageScore, but not as often. One billion Vantage Scores were sold in 2014 compared to 11 billion FICO scores.
  • PLUS score: Developed by Experian, this score is based only on what’s in your Experian credit report and is simply for educational purposes — lenders do not use it. It ranges from 330 to 830.
  • TransRisk score: This score was developed by TransUnion based on its own credit reports. Instead of taking into account your entire account history, it only predicts risk for new accounts. It ranges from 100 to 900.
  • Equifax score: This is the Equifax version of your credit score, and it ranges from 280 to 850. Like the Experian PLUS score, it is an educational tool only.

Don’t get overwhelmed by the different credit scores that are out there. Simply be aware that lenders are much more likely to look at your FICO credit score than any other, and it’s up to you to double-check which score you’ll be getting before you pay to receive a your score from any service. Later on in this guide, I’ll detail several places where you can get your credit score and specify which one you’ll be receiving.

Credit Score Ranges: What’s a Good Credit Score, and What’s a Bad One?

Every lender will use slightly different criteria to determine whether or not you’re creditworthy enough to lend to. For instance, it can be difficult to get a low-interest mortgage with anything less than a great credit score, but you may still be able to get a decent auto loan even with mediocre credit.

That said, there are still some general guidelines, particularly since the two largest companies, FICO and VantageScore, use the same overall point range of 300-850.

We tend to trust consumer credit expert John Ulzheimer’s more practical breakdown above, where bad credit is a score under 650 and excellent credit is anything above 760. However, for comparison’s sake, FICO also offers its own credit score ranges:

  • Exceptional Credit: 800+
  • Very Good Credit: 740-799
  • Good Credit: 670-739
  • Fair Credit: 580-669
  • Poor Credit: Under 580

Ulzheimer says the reality is much simpler. “I think the tendency is to want to slice up the ranges too much,” Ulzheimer says. “The truth is one man’s trash is another man’s treasure… If you find any lender that considers a 580 to be a ‘fair’ score and a 799 anything other than exceptional, I’d be surprised.”

In practical terms, what really determines a good credit score, Ulzheimer says, is whether you can qualify for the best interest rates. “If you get approved at the best rate, then your scores are good. If you didn’t get approved at the best rate, then they’re not good enough,” he says.

Perhaps you already know what your credit score is, but wonder how it stacks up to the rest of America. It turns out that the average American is no credit slouch: The average FICO credit score was 695 in 2015, an all-time high, and nearly 20% of consumers had a credit score of 800 or higher.

More than half of Americans (54.2%) had a good or excellent credit score of 700 or higher. But nearly a third (32.2%) had a score below 650, which is typically considered subprime.

Know More About Narrowing the Self Payment Gap

It’s not even halfway through the year and your medical savings have run out, leaving you in the dreaded self-payment gap (SPG). Sound familiar?

It’s something that happens to many medical aid members, but about which many are in the dark.

“Approximately 65% of members on plans with a SPG deplete their medical savings account at some point during the year,” reveals Deon Kotze, Discovery Health R&D head.

“Of those members, two thirds reach their annual threshold and receive extended cover for day-to-day healthcare expenses.

What is it?

The SPG is an amount assigned to members, that they must pay in full for day-to-day expenses, once their medical savings have run out. These claims are submitted to the scheme, not for refunding, but to reduce and close the gap – after which the above-threshold benefit takes effect and the scheme again pays for day-to-day claims.

It’s applicable to schemes/plans with an above-threshold benefit (limited or unlimited) – usually top-end plans.

SPGs are mechanisms “which the scheme can use to transfer some of the ‘out of hospital expenses’ risk from the scheme to the member,” adds Jill Larkan, GTC healthcare consulting head. This allows schemes to reduce premiums and make [the plan] appear more attractive.

Your initial self-payment – which can increase – is the difference between your annual threshold and annual savings, Chartered Employee Benefits healthcare specialist Devlin Ross writes here.

That the SPG’s not fixed may be a surprise.

What adds to the gap?

Some claims made from savings, may add to the SPG.

Some reasons why Discovery’s SPG increases:

  • Medical savings accounts smaller than the annual threshold;
  • Members claim for over-the-counter (OTC) medicine – including schedule 0, 1 and 2 – from savings;
  • Claims submitted from the previous year and paid from savings;
  • Claims paid over a plan’s annual benefit limits;
  • Special payment applied for from savings;
  • Procedures and medicine that don’t count toward closing the SPG paid for, e.g. certain alternative treatments such as reflexology and acupuncture.

Tips for closing the gap

SPGs are only reduced by claims members pay for that are at medical aid rates, among other things, writes Ross.

For example, if you pay a GP who charges R500 – and submit the claim to the medical scheme to reduce your SPG – if the medical aid rate for a GP consultation is R320, your SPG will only reduce by R320.

As such:

  • Evaluate your medical aid plan: what you’re covered for, at what rates, with which providers and if a specific hospital or pharmacy network much be used, says Kotze. Members really wanting to avoid any SPG, must consider a comprehensive top plan, which can be costly, adds Pascale Bargehr, Total Risk business development officer.
  • Ross concurs. Ensure you really need a plan with an above-threshold benefit. If you’ve been on a plan for two years or more and have never closed your SPG, you’re likely a little over-insured. A financial advisor can assess your needs and place you on an appropriate plan.
  • Look for schemes offering benefits paid from risk. These benefits offer more value for money and are in addition to savings and day-to-day benefits.
  • When entering an SPG, ask your scheme what counts towards closing the gap. Then manage your spending efficiently to maximise benefits, writes ThinkMoney here.
  • Always use a partner network hospital, doctor or pharmacy: you won’t be charged over the rate agreed on with the scheme. This helps avoid copayments, deductibles and additional out-of-pocket expenses, says Gerhard van Emmenis, Bonitas Medical Fund acting principal officer.
  • While using your medical savings, and when in your SPG, use service providers (GPs, dentists, etc) who charge medical aid rates. Then your SPG will be at the same amount originally indicated on the benefit schedule, says David Narun of Informed Healthcare Solutions.
  • “If [hospital] procedures attract a copayment, negotiate with the provider on alternative/more conservative treatment protocols where possible, explains Ann Streak, Alexander Forbes Health senior consultant.

 

Van Emmenis and Kotze share a few more tips:

Use managed-care benefits. Some schemes offer preventative care benefits, paid from risk, not from savings, including oncology, HIV and diabetes management programmes.

Pharmacists can provide sound advice on some medical problems e.g. rashes or colds.

Pay cash for OTC medicine for less serious ailments. Consider cheaper, effective generics.

Know doctors’/specialists’ rates. Ask what rates your doctor charges and if you’ll be liable for co-payments. If affordability is a concern, look for a provider who charges medical scheme rates.

Register chronic diseases. On regular medication for a chronic illness? You may qualify for chronic medication benefits, which your scheme pays for from risk.

Schemes often have lists of medication covered in full for chronic illnesses, called ‘formularies’. Ask your doctor/pharmacist if your prescribed medicine is covered in full. If not, ask about alternatives.

Pre-authorise all hospital admissions to ensure you’re covered. Ask if copayments or sub-limits apply and how to avoid them. Ask your scheme if you’ll have better cover for planned procedures, by using contracted providers or having the procedure in a doctor’s rooms or day clinic.

Caring About A Credit Score

If you believe everything you read about your credit score, you’d think it was the most important component of your financial health. Without a good credit score and history, the experts say, it’s more difficult to qualify for a mortgage or car loan – and more expensive, too, because you won’t get the best interest rates. In many states, bad credit can even raise your insurance premiums, cost you a rental apartment, or make it harder to get hired.

While all of that is true, it doesn’t tell the whole story.

First off, there are several credit scores out there. While it’s important to nurture your credit scores by using credit responsibly, your FICO credit score could be different from the one VantageScore reports, and lenders may use a different one entirely — so obsessing over one score can be a fruitless exercise.

More importantly, as Dave Ramsey famously notes, your credit score is not a measure of your financial health at all.  “All it tells you is whether you are good at borrowing money and paying it back. That’s it,” says Ramsey on his blog.

Think about it. There are few ways to build credit without borrowing money. While your credit is undoubtedly important — especially when it comes to achieving certain life milestones, like buying a home – your credit score doesn’t necessarily dictate whether you’re “good” with money or wealthy at all.

Six Reasons I Stopped Worrying About My Credit Score

With that in mind, I stopped caring about my credit score a few years ago. I do track my score and new accounts opened for free on Credit Karma, but that’s mostly just to prevent fraud and identity theft – not to judge my score.

Here’s why I just can’t care anymore:

I would rather be debt-free than have a perfect credit score.

FICO, the most popular credit scoring agency, uses several weighted factors to determine your credit score, including payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). Believe it or not, these rules make it so you can be penalized for becoming debt-free!

My husband and I have enjoyed steady credit scores above 820 for a while now. But when we paid off one of our rental properties earlier this year, we both saw our credit scores drop by 20 or more points. The sudden drop took place because we paid off a 15-year loan and reduced the average length of our credit history tremendously. In other words, because we paid off and closed a line of credit, our scores took a hit.

That’s a racket if I’ve ever heard one, and yet another reason I refuse to worry when my score fluctuates. I would much rather be debt-free than keep my credit score hovering in the 820 range.

I want to make decisions based on what’s best for our family, not on what is best for my credit score.

Taking that one step further, I refuse to let my credit score dictate our financial lives. If I had been overly worried about my credit score, I may not have worked so hard to pay off our rental property early. Perhaps I would worry about prepaying our home mortgage as well, and quit making extra payments there, too.

At the end of the day, I know what’s best for my family — and it’s not carrying around a bunch of debt for the next 20 to 30 years. So, I say to heck with my credit score; now that one of our rentals is paid off, we’re working hard to pay off our primary residence and our other rental as quickly as we can. If our scores drop when we pay off our primary residence, so be it.

If I don’t have the cash, I can’t afford it.

Admittedly, I realize it’s easier to ignore your credit score when it’s a good one. A lot of people might question what I would do if my credit score took a sour turn once we become entirely debt-free. What happens if I need to finance a new car, for example?

The thing is, I have zero intentions of borrowing money ever again. If I don’t have the cash, I can’t afford it… period. That rule applies to vehicles, vacations, home remodeling projects, and any other expense you can dream up. And really, I would rather drive a skateboard than have a car payment ever again.

I own my own home, and have no plans to move.

While you should pay special attention to your credit score if you plan to buy a home, those of us in our forever homes may not need to worry too much. We’re in the home we plan to raise our children in, and we now owe a lot less than half our home’s value. As a result, we never plan to move. And if we do move in the very distant future, we should have the cash to pay for our new home in full.

We have a healthy emergency fund.

When it comes to maintaining debt freedom, having a healthy emergency fund has been huge for us. While the size of our e-fund ebbs and flows based on our earnings and the time of the year, we frequently have more than six months of cash expenses to use in emergencies.

Because of our emergency fund, I don’t need a boatload of credit at my disposal. I use credit cards to earn rewards, but we’d be fine if our accounts were cancelled for any reason, including lack of credit or a waning score.

A FICO score over 720 has diminishing returns.

To qualify for the best rewards credit cards, a home mortgage with the lowest interest rates, or personal loans with the best terms, you usually need a solid job history and income, a record of responsible credit use, and a FICO score of 720 or above.

You know what you get for a FICO score of 800? Or 850? Honestly, not a lot more.

When it comes to your credit score, there’s a point of diminishing returns. While earning and maintaining a good credit score is absolutely a smart move, there’s no award for a perfect FICO score – no cookie, no trophy, no nothing.

Final Thoughts

Your credit score is important – especially when you’re first starting out. But once you’re fairly established financially, it’s much easier to see credit for what it really is. As Ramsey says, your FICO score is nothing more than a measure of how well you borrow money. That’s why it’s possible for people with mountains of debt to still have extremely high credit scores.

As for me, I just can’t care about my score anymore… and I refuse to play the game. While an 850 FICO score is something to be proud of, I’d rather be wealthy and debt-free.

Simple Tips to Fix Bad Credit

Maybe you’ve got a longer credit history, but it’s not exactly spotless. The good news is that you can raise a bad credit score if you’re willing to put in the work. The bad news is that it’s not a quick process. But given the myriad effects your credit score has on your life, it will be worth the time and effort.

Know what’s in your credit report

FICO recommends making sure you know exactly what’s in your credit report before you embark on a plan to improve it. That way, you’ll be able to spot any errors or instances of fraud that are artificially dragging down your score and dispute them.

Don’t close old accounts

Remember that 15% of your credit score hinges on the length of your credit history. Once you see your credit report, it might be tempting to close those old, unused accounts, but that can actually hurt your score.

On the other hand, having the credit there — but not using it — can help you. Cut up the cards if you have to, so you don’t use them. One exception may be a credit card with a hefty annual fee — you may want to get rid of it if you no longer use it in order to avoid the fee.

Set up a bulletproof payment plan

Set up automatic payments to make sure you pay your bills on time. If you can, pay more than the minimum due so you won’t pay as much in interest.

If you’re having trouble making the minimum payments on all your credit accounts each month, it may be time to contact your creditor and set up an alternative payment plan that you know you can keep up with. Of course, creditors are under no obligation to work with you, but most are willing to negotiate on minimum payments, interest rates, and late-payment charges.

Consolidating your existing debt into one loan can help you manage payments as well. Consider a balance transfer credit card to lower your interest payments on credit card debt and make only one payment.

Chip away at high balances

Remember, 30% of your credit score is based on how much of your credit you use — charge too much and you look like you’re at risk of overextending yourself. Experts recommend aiming for a balance of no more than 10% of your available credit. Focus on taming your credit card balances first — that will help your score more than attacking an installment loan.

Shop for new credit relatively quickly

When you shop around for a loan, your credit score can dip when potential creditors check your credit history as part of your application. You can help combat this by confining your shopping to a relatively short period of time — most likely 30 days (though it could be as short as 14 or as long as 45, depending on whether your lender is using an older or newer FICO scoring formula). Then, even if multiple potential creditors pull your report in a two-week span, FICO will count this as just one inquiry rather than several.

How Do I Check My Credit Score?

Now that you’ve learned all the essentials about your credit score, let’s talk about how to check it. There are several places you can do this, but some are better than others.

Note that by law, you are entitled to a free copy of your credit report from each of the three major credit bureaus every year fromAnnualCreditReport.com. Unfortunately, this report does not actually include your credit score, but it does include all the information your score is based on — what credit accounts you have, how much you owe, whether you’re paying on time, and so on.

FICO and the credit bureaus

You’ll get the most useful, detailed information either straight from FICO or one of the credit bureaus, but you will have to pay for these services. Here are your options:

  • myFICO offers two main services: one-time FICO scores and reports as well as ongoing credit monitoring. You can opt for a one-time credit score and report from one credit bureau of your choice for $19.95, or you can get your scores and reports from all three bureaus for $59.85. Ongoing credit monitoring ranges from $14.95 a month to $29.95 a month. The higher price gets you triple-bureau monitoring and identity-theft protection.
  • You can get your Experian credit report and FICO score for $19.95, or a three-bureau report and FICO scores from all three bureaus for $39.95. Ongoing credit monitoring of your Experian credit report and FICO score is $4.95 for a month, then $19.95 every month thereafter.
  • Ongoing credit monitoring with Transunion will give you access to your Transunion credit report and FICO score for $17.95 a month after a $1, one-week trial. The service includes several identity-theft monitoring features. Unfortunately, there is no readily available online option to order a one-time credit score and report without signing up for this service.
  • Equifax offers your FICO score and Equifax credit report for $19.95. Be careful, because it also offers its credit report with the less-useful Equifax score for $15.95, or $39.95 for reports from all three bureaus. There is also an ongoing credit-monitoring option that includes your FICO score for $14.95 a month.

Credit monitoring services

There are a number of credit-monitoring services such as Identity Guard and Lifelockthat offer more comprehensive identity-theft protection than most of the services offered by the credit bureaus. Prices typically range from about $8.99 to $26.99 a month. Most also include options for either single- or triple-bureau monitoring. However, note that the credit scores that these services access are typically not FICO scores.

For more details on credit monitoring services, check out our guide to the best credit monitoring services for recommendations.

Free credit report sites

It’s hard to beat free, so what’s the catch? Well, some less-than-reputable sites aren’t really free at all — they come with strings attached. Often you’re signing up for an initial free service that sticks you with another monthly bill when your trial period ends.

Fortunately, there are reputable sites that do let you see your credit score for free. For more details, see our guide to the best free credit report sites. Also note that you will notbe seeing your actual FICO score, which is what most lenders see and use, and typically will only see a score based on information from one credit bureau, not all three.

  • Credit Karma is partnered with TransUnion. It has a good variety of credit tools and educational information as well as fewer ads than its competitors. You will see your VantageScore based on TransUnion data.
  • Credit Sesame is now also partnered with TransUnion. Their free service actually provides identity theft insurance, but paid products are pushed more, too.
  • Quizzle is partnered with Equifax. It provides a full credit report every six months. You will see your VantageScore based on Equifax data.

Banks or credit-card issuers

A number of banks and credit-card companies are starting to provide credit scores for customers on monthly statements or online. Some lucky cardholders, including Chase Slate, Barclaycard, and Discover it customers, will have access to their FICO scores. Some others will be stuck with less useful non-FICO credit scores. Keep in mind that in most cases, you won’t have access to your actual credit report, too.

Raise Your Credit Score

Boosting your credit score might seem like an impossible feat, but it’s not that hard to accomplish if you understand how credit works. Some easy moves you can make might even help your score gain a few points right away – that is, if you know what you’re doing.

Increasing your Credit Score Takes Time

Despite rumors to the contrary, your credit score doesn’t actually start at zero. As our resident credit expert John Ulzheimer recently noted, “FICO scoring models and the current VantageScore model are scaled on a range from 300 to 850. There is no such thing as a credit score of zero, despite what some financial celebrities love to suggest.”

Unfortunately, we can’t take your current score, put it in an enchanted pot, water it and watch it magically grow into a top-tier rating. It’s going to take time. Depending on why your score is low to begin with, it could take a couple of years, or more, to recover.

To get you back into the game, we need to cover the basics and make sure you’re not unintentionally letting your score get beat up. Follow this list of tips to make the biggest impact to your credit score:

  • Make on-time payments – Of course, with time, this heals all. If you had a tendency to miss a payment here and there, or miss the due date by a few days, consider setting up a recurring reminder or an automatic payment draft – for more than the minimum due.
  • Consider frequent payments – Making mini-payments throughout the month can help boost your score. By frequently reducing your balance, you are also trimming your “credit utilization” and that’s a good thing. Your overall available credit makes up about 30% of your credit score according to FICO, the company that issues the most-recognized credit score.
  • Keep a variety of credit accounts – It’s usually a good idea to pay off your credit cards first, rather than installment loans. Having a mix of credit accounts may help your score. However, opening a new installment loan account just to add to the variety of creditors you owe is not likely to boost your score, according to FICO.
  • Don’t close accounts – After a bout of bad credit, the first inclination is to just get rid of as many credit accounts as you can. This can actually lower your credit score. By paying off accounts, but keeping them open with available credit, you’ll help your score over time. In this case, the old saying “use it or lose it” doesn’t apply. In the world of credit ratings, what you don’t use – your available credit – is almost like gold.
  • Pay down debt – As credit expert John Ulzheimer notes, the best way to improve your credit score quickly is to pay down existing debts. “If you’re able to pay down your credit cards while eliminating some balances entirely, then your credit scores will begin to improve almost immediately,” he says. Ulzheimer suggests choosing accounts that have the lowest balances and targeting them first for the biggest impact.

Other Ways to Raise Your Credit Score

Although raising your credit score isn’t rocket science, there are more ways to make a huge impact without much work on your part. Here are a few unusual tips that can help improve your credit score over the long haul:

  • Spend less than 10% of your credit line – FICO says the 50 million individuals who have the highest credit scores in the nation, which account for 25% of all individuals with scores, use only an average of 7% of their available credit. That’s a pretty specific number, so at least shoot for spending less than 10% of what you’re approved for. Paying down your balances is the fastest way to see an improvement in your credit score.
  • Use that old credit card stuck in the back of the drawer – Of those FICO “over-achievers” with credit scores of 785 or more (on a scale topping off at 850), their average credit card account is 11 years old. If you have an old card that has been paid off, pull it out and use it from time to time, immediately paying off the balance. That will keep the creditor from closing the account for inactivity, and maintain and lengthen your long credit history, which can enhance your score.
  • Confirm your existing credit limits – If a creditor is under-reporting your available credit limit on your credit report it can negatively impact your score. Confirm your limit online or from your most recent statement. If it’s greater than what is shown on your credit report, call the card issuer to have it corrected.
  • Ask for a re-aging – If you’ve had some delinquencies on a credit card but have been paying on it regularly for at least three months, you can ask the issuer to “re-age” your account. If they agree to it, they will erase the past-due notations on your credit report for that credit card. Keep in mind that debts have a statute of limitations, meaning that there’s only a set amount of time collectors can sue to collect on debts. Don’t be tricked into re-aging, or “bringing back to life,” debts that are not collectable.

Protecting Your Increasing Score: What Not to Do

First, do no harm. That’s an excellent medical dictum but also a good policy for protecting your healing credit score. When it comes to improving your credit score, here are potentially harmful tactics to avoid:

  • Don’t ask your bank to lower your limits – In an effort to enforce some discipline in reducing credit card debt you may think it would be a good idea to call your credit card issuer and request they lower your credit limit. The thinking might be: if it’s not available, you can’t spend it. It’s a noble concept but unfortunately lowering your available credit will probably lower your credit score, too. Remember, you want to have the spending power without tapping all of it.
  • Don’t transfer balances – Moving money from one credit card to another to gain more favorable interest rates can be a good idea, but the real key to having a higher score is to maintain smaller amounts due on your cards, not a big balance. That said, if you are unable to pay the balances off in full every month, and the interest is hitting your bank account too, if could be in your best interest to consolidate your debt. Look for cards with a lengthy 0% APR offer and a minimal balance transfer fee.
  • Don’t skip regular checkups – Getting your free credit reports and reviewing them for errors is always a good idea, but especially when you’re working to raise your score. Incorrect information or misstated balances can be fixed, but only if you are aware of them.
  • Don’t take advantage of credit repair offers – Most are scams, promising clean credit reports and an increased score. Although credit repair companies can deliver temporary solution, the problems you’re experiencing won’t necessarily go away. What’s more, steps a repair company would take are the same as the ones you can take without paying hefty fees. Take the time to learn about your credit score and repair it yourself.

You know those top-tier FICO score consumers we mentioned earlier? Even some of them have suffered setbacks in the past, including late payments, collections – even tax liens and bankruptcies, according to FICO. And now they’re at the head of the class with the best-of-the-best credit scores. With time and proper credit debt management, you can join that elite group of folks with scores in the upper 700’s.

Debt is Better

I’m restless today.  Irritable.  Unmotivated and uninspired. I’m impatient and I’m tired of being in debt.

I hate when I get in funks like this but it happens every so often.  Sometimes when I’m focusing on a goal, I obsess about it. The more I focus on reaching the goal, the longer it seems to take to get there. When I go through these phases, I make a conscious effort to shift my mindset back to one of gratitude instead of wanting and self-pity.

For the past ten months, I have been relentless about paying off my credit card debt. It’s almost gone…all $8,000. It’s been a rollercoaster ride. I feel the highs of making those $800 payments and then the lows of being set back by unexpected life expenses.

There is nothing pretty about paying off debt. There’s no easy way to do it, no quick way to fix it.  It tries you emotionally.  It tests your dedication and your persistence.  It’s hard and it’s gritty and some never succeed.

How I got here

Paying off my credit card debt to this point has been an especially emotional journey because of how I accumulated the debt in the first place.

Fourteen months ago, I was an alcoholic that had nothing to offer the world or anybody in it. I was jobless, penniless, and would’ve been homeless if it weren’t for a couple people looking out for me. At the end of my drinking, I couldn’t even get out of bed without a blood alcohol level of about .2%.

Not .02%.

.2%.

Yes, I was in debt…even worse than I am now.

But I was also out of hope. I couldn’t find very many things to be thankful for in my life and I was running out of places to turn. I didn’t know what the future looked like for me. Most of the time I didn’t even know what the next day looked like. I didn’t know what I wanted, who I was or what I stood for.

Yes, I was in debt.

But, even worse, I was morally bankrupt

I had surpassed being in debt in my personal life.  I was bankrupt, at the point of no return.   Hitting the reset button and starting over was my only option.

As I continued down the rabbithole of addiction, I turned into somebody that I had never thought I would be. I broke the law, putting myself and others in danger. I was a burden to society.

There wasn’t anybody in my life that I hadn’t pushed away. I treated them poorly, manipulating, using and taking advantage of them. I said things to people that I would never say sober, things I could never imagine saying and doing now.

When I was asked what my goals or ambitions were, I didn’t know what to say.  My addiction got me to a place where I had no hopes or desires other than to wake up and get wasted.

I hated myself and what I had become. There was a good person inside of me, but that person was drowning in booze. The only logical next step in my life was the one that I didn’t want to take. I had to get sober.

I finally filed moral bankruptcy in April 2016

It took an act of force to get me into treatment. I had violated my probation and the only way I could get myself out of jail was to agree to be on an alcohol monitor. The criminal justice system gave me an ultimatum: stay on the monitor or go to treatment.

I chose treatment. I didn’t want to live the way I had been living anymore. So I chose treatment.

I went to treatment for 25 days, worked hard, graduated and went home.  I got my drivers license back, did my community service, went to AA six days a week and didn’t worry about getting a job right away.

Yes, I was in debt.

But my debt wasn’t my first priority. My recovery was my first priority because I knew that if I didn’t focus on myself and getting better, I would relapse and go back to being the person I was. The morally bankrupt person. That was not what I wanted.

Why I’m grateful for my debt

In those two months between getting out of treatment and me going back to work, I all but maxed out my credit cards trying to pay my fines and fees related to my DWI, stay caught up on my bills and stay healthy. I topped out my credit card debt at $8,000.  But I also saved my own life.  I was sober.

Today I am feeling restless because I am getting close to the end of that $8,000 in credit card debt and I just want it to be gone. Once my credit card debt is gone I can focus on other financial goals.  But maybe it’s not such a bad thing to still have $1400 in credit card until the beginning of next month when I pay it off.

Because while I’m still in debt today, I’m also a good person that has something to offer to others and to the world. My dog isn’t scared of me anymore and my niece and nephews know who I am.

I have people that turn to me for advice and others that depend on me to be there when they need a friend. I’m reliable.

My family and friends don’t have to lay awake at night anymore, scared about getting a phone call hearing that I’m dead. I have a bright future and I’m going to be a millionaire someday.

Today is not that day.  Yes, I’m still in debt.

Credit Score Affects Loans and Credit Cards

As mentioned earlier, having a good credit score can make your life easier. Now let’s take a closer look at the impact your credit score has on what loans you qualify for and how much you’ll pay. Specifically, I’ll look at three of the most common types of credit accounts — mortgages, car loans, and credit cards.

Credit cards

You’ll probably be able to get a credit card with just about any credit score. What varies dramatically will be the type of credit card for which you will qualify.

  • Excellent credit: With a top-notch credit score, you’ll be able to obtain the lowest advertised interest rate on most credit cards — this varies by card, but may be less 10%. More notably, you’ll be able to qualify for the best rewards credit cards that allow you to earn incentives, including cash back, airline miles, and hotel stays. Only consumers with excellent credit will be able to qualify for the best rewards offers.
  • Good credit: If you’re a notch below top credit, you can still qualify for a wide range of cards. While you may be shut out from some of the best rewards cards, you still may qualify for 0% introductory APRs that can be ideal for balance transfers. Your ongoing interest rate may be a bit higher, creeping into the mid-teens.
  • Average credit: You may be able to qualify for many of the same cards those with good credit can snag. The main difference is that you’ll probably be paying a much higher interest rate for the privilege, typically approaching or above 20%.
  • Bad credit: With bad credit, you can still get a credit card. However, you may be limited to a secured credit card that requires a security deposit. This deposit is often equal to or greater than the amount you can charge, and the credit-card company can take your deposit if you don’t pay your bill. If you do qualify for an unsecured card that doesn’t require a deposit, your credit limit will probably be very low.

Mortgages

A good credit score can make all the difference when you want to become a homeowner. While loans to those with bad credit have recently been on the rise in other sectors, that’s not the case with mortgages. Lenders were burned by the subprime mortgage crisis of 2008 and have kept a lid on loans to subprime, or bad-credit, borrowers.

For a more concrete example, let’s say I’m applying for a fixed-rate, 30-year mortgage for $200,000 in Tennessee. Take a look at the chart below, drawn from the myFICO loan savings calculator, to see how my credit score would affect my interest rate, monthly payment, and what I ultimately pay in interest over the life of my mortgage.

FICO Score Interest Rate Monthly Payment Total Interest Paid
760 and above 3.485% $896 $112,710
700-759 3.706% $921 $131,648
680-699 3.883% $941 $138,900
660-679 4.096% $966 $147,736
640-659 4.525% $1,016 $165,884
620-639 5.069% $1,082 $189,553

 

As you can see, if I have a FICO score in the bottom tier of this table, I’ll be paying $186 more a month for my mortgage than someone with a score of 760 or above. I’ll also be paying almost $67,000 more in interest over the life of the loan.

Interestingly, mortgage lending has tightened so considerably that it’s difficult to get a mortgage below, or even at, the 639 mark. One exception can be the Federal Housing Administration loan program, which may make loans to borrowers with scores as low as 580.

Car loans

The good news: It’s much easier to land a car loan than a mortgage if you have bad credit. In fact, bad credit auto loans made up more than two-thirds of subprime lending volume in the first 11 months of 2014, according to Equifax.

The bad news: You will pay a much higher interest rate than someone with a good credit score.

Let’s say I want a 48-month, $15,000 auto loan to finance a new car in Tennessee. Here’s how the numbers shake out:

FICO Score Interest Rate Monthly Payment Total Interest Paid
720 and above 3.07% $332 $959
690-719 4.292% $341 $1,351
660-689 6.049% $353 $1,925
620-659 9.598% $378 $3,122
590-619 15.177% $419 $5,103
500-589 16.909% $432 $5,742

 

As you can see, you can still land a loan with a bad credit score, but you pay a big premium. I would pay $100 more a month and nearly $4,800 more over the life of my loan if I have a credit score on the bottom tier of this list instead of the top tier.

Know Some Factors that Affect Credit Score

Now that we know what credit scores are out there and what makes a good and bad score, let’s explore the variables that make up your score more in depth. Given FICO’s dominance, we’ll focus specifically on what makes up your FICO credit score.

Here’s the breakdown of how your credit score is calculated, according to FICO:

  • Payment history, 35%: Your payment history tells potential creditors whether you’ve paid your bills on time. Foreclosures, collections, bankruptcies and the like will also cause your credit to take a hit here, if applicable. Your score will reflect how late you were making payments, how many times you’ve been late, how much you owed, and how recently you missed them.
  • Amounts owed, 30%: If you’ve used too much of your available credit, that signals to potential creditors that you could be spreading yourself too thin. How much you owe on all of your accounts versus your total credit limit — as well as what you owe on certain types of accounts, such as credit cards versus installment loans — are among the factors that can affect your score in this category.
  • Length of credit history, 15%: A long credit history makes you less risky to potential creditors than someone who has only recently opened their first credit accounts. Your credit score reflects the age of your accounts as well as how long it’s been since you’ve used them.
  • New credit, 10%: Opening too many new credit accounts at once can hurt your score. So can too many inquiries into your credit when you’re shopping for a credit account.
  • Types of credit, 10%: Potential creditors like to see a variety of credit accounts instead of just one type. In particular, they like to see both revolving credit lines, which allow you to borrow money again and again after repaying it (such as credit cards), and installment debt, or a loan disbursed in a lump sum and repaid in fixed payments for a fixed period of time (such as a car loan or student loan).

How Do I Build Good Credit?

If you’re starting from ground zero with very little or no credit history, there are certain steps you can take to make your credit shine in as short a time as possible.

Perhaps you’re just starting out and haven’t thought much about your credit yet, but know you want to be as proactive as you can and lay the groundwork for a good credit score. Here are some tips on how to do that responsibly.

Learn how to manage ‘real money’ first

Before you open any credit accounts, you should be adept at budgeting. That includes using a checking account to pay regular expenses without incurring overdraft fees, and using a savings account to start building an emergency fund.

A debit card that’s linked to your checking account is as convenient as a credit card without the responsibility of the monthly bills, or you can opt for a prepaid card. Just beware of fees if you go this route, and check out our guide to the best prepaid debit cards before you pick one.

Start small with a credit card designed for first-timers

The Simple Dollar recommends several special types of credit cards that can help you build your credit without risking too much debt.

  • Student credit cards can teach financial responsibility, often with more forgiving terms and fees than other credit cards. Your credit limit will probably be low, and you may need to have a parent co-sign your application. Check out our own recommendations if you’re shopping for the best credit cards for students.
  • Secured credit cards require you to deposit a certain amount of cash in order to open an account. The card issuer can then use this deposit as collateral in case you don’t pay your bill. A secured credit card won’t have the perks of many other cards. You’ll also want to double-check that your card activity will be reported to credit bureaus, which is the only way you’ll be able to build your credit history. We offer a few recommendations on secured credit cards in our guide to the best credit cards for bad credit.
  • Retail credit cards may be an option because they have low limits and are often relatively easy to qualify for, but they also have high interest rates that make them better suited for when you’re more comfortable — and responsible — with credit cards.

Add another kind of credit to the mix

Once you’re feeling more comfortable with your new credit card, diversifying your credit can start to raise your score. You can apply for a small personal loan at your bank and pay it back quickly, or opt for an installment loan, such as a car loan or a student loan — but only if you really need it and can afford to pay it back.

Maintain good credit habits

Good credit habits start with the basics of budgeting, spending, and paying on time.

Paying your bills on time is the number one rule. However, getting in the habit of making more than the minimum payment due is also a good practice. This helps you pay off your loans faster over time. Even paying just a little bit more than you need to can save you a lot in interest.

Your credit utilization is also important to understand. As you become more experienced with credit, your card issuer may raise your credit limit. But just because you’re suddenly allowed to charge $5,000 doesn’t mean you should.

A good rule of thumb is to use less than 30% of your credit limit to build a healthy credit score. That means keeping your monthly balance under $1,500 if your credit limit is $5,000

Reduce The Costs In An Estate

The death of a spouse, friend or relative is often an emotional time even before estate matters are addressed.

And truth be told, death can be an expensive and cumbersome affair, particularly if estate planning was neglected, the claims against the estate start accumulating and there isn’t sufficient cash to settle outstanding debts.

People generally underestimate the costs related to death, says Ronel Williams, chairperson of the Fiduciary Institute of Southern African (Fisa). Most individuals have a fairly good grasp of significant expenses like a mortgage bond that would have to be settled, but the smaller fees can also add up.

To avoid a situation where valuable assets have to be sold to settle outstanding debts, it is important to do proper planning and take out life and/or bond insurance to ensure sufficient cash is available, she notes.

Costs

The costs involved in an estate can broadly be classified as administration costs and claims against the estate. The administration costs are incurred after death as a result of the death. Claims against the estate are those the deceased was liable for at the time of death, the notable exception being tax, Williams explains.

Administration costs as well as most claims against the estate will generally need to be paid in cash, although there are exceptions, for example the bond on the property. If the bank that holds the bond is satisfied and the heir to the property agrees to it, the bank may replace the heir as the new debtor.

Williams says quite often estates are solvent, but there is insufficient cash to settle administration costs and claims against the estate. In the event of a cash shortfall the executor will approach the heirs to the balance of the estate to see if they would be willing to pay the required cash into the estate to avoid the sale of assets.

If the heirs are not willing to do this, the executor may have no choice but to sell estate assets to raise the necessary cash.

“This is far from ideal as the executor may be forced to sell a valuable asset to generate a small amount of cash.”

If there is a bond on the property and not sufficient cash in the estate, it is not a good idea to leave the property to someone specific as the costs of the estate would have to be settled from the residue. Where a particular item is bequeathed to a beneficiary, the person would normally receive it free from any liabilities. This could result in a situation where the beneficiaries of the residue of the estate may be asked to pay cash into the estate even though they wouldn’t receive any benefit from the property, Williams says.

The most significant administration costs are generally the executor’s and conveyancing fees.

If the will does not explicitly specify the executor’s remuneration, it will be calculated according to a prescribed tariff, currently 3.5% of the gross value of the assets subject to a minimum remuneration of R350. The executor is also entitled to a fee on all income earned after the date of death, currently 6%. If the executor is a VAT vendor, another 14% must be added.

Assuming an estate value of R2 million comprising of a fixed property of R1 million, shares, furniture, vehicles and cash, the executor’s fee at a tariff of 3.5% would amount to R70 000 (plus VAT if the executor is a VAT vendor). Conveyancing fees will be an estimated R18 000 plus VAT. Depending on the situation, funeral costs may be another R20 000, while other fees (Master’s Office fees, advertising costs, mortgage bond cancellation and tax fees) can easily add another R10 000. By law advertisements have to be placed in a local newspaper and the Government Gazette, with estimated costs of between R400 and R700 and R40 respectively. Master’s fees are payable to the South African Revenue Service (Sars) in all estates where an executor is appointed with a gross value of R15 000 or more. The maximum fee is R600.

Where applicable mortgage bond cancellation costs, appraisement costs, costs of realisation of assets, transfer costs of fixed property or shares, bank charges, maintenance of assets and tax fees will also have to be paid. The executor is also allowed to claim an amount for postage and sundry costs, while funeral expenses, short-term insurance, maintenance of assets and the cost of a duplicate motor vehicle registration certificate may also have to be taken into account.

Luckily, there are ways to reduce the costs involved

Williams says the first step is to try and negotiate the executor’s fee with the appointed executor when the will is drafted. The fee could then be stipulated in the will or the executor could give a written undertaking confirming the agreed fee. But even if the deceased did not negotiate it at the time of drafting, the family or heirs can still approach the nominated executor and negotiate a competitive fee when they report the estate to the executor.

“Depending on who the executor is and what the composition of your estate is, you can probably negotiate up to a 50% discount.”

The composition of assets will generally be a good indicator of the amount of work that needs to be done and the executor will quote a fee against this background. The sale of a fixed property and business or offshore interests may complicate the process of winding up the estate.

If the surviving spouse is the sole heir, and/or there are no business interests and sufficient cash is available to cover the costs, the executor will generally offer a larger discount. Ultimately, the executor is responsible for signing off the liquidation and distribution account, confirming that all the costs are correct and that it will be settled.

Unfortunately, most of the smaller administration costs will have to be paid, with limited scope for negotiation, Williams says.

Let’s Learn About Financial Planning For Soon to Be Parents

Starting a family is a very exciting experience and well done for taking the first step to planning for your family’s financial future.

You have mentioned that you have medical aid. I would strongly advise that you review the medical aid plan that you have, to make sure that you have comprehensive cover for all the required gynaecologist visits and that your hospital is in close proximity to your home.

Is gap cover essential?

Indeed, gap cover is essential, as it covers the shortfall that often occurs for when you have a medical procedure. The shortfall arises from the difference in what the medical scheme pays and the actual cost of the medical procedure.

I would also recommend that you consider sickness cover – should you experience any complications in your pregnancy. Sickness cover is a benefit that pays out the equivalent of your monthly income in the event of illness, injury or sick leave and can be a solution for when you are unable to work in the short term. The sickness benefit also provides cover during a period of special leave (sabbatical, unpaid maternity leave, etc.) of up to a period specified by the provider of the cover. See Sanlam’s sickness benefit (IS3) here as an example.

In preparation for your pregnancy, I would encourage you to start saving for all of your child’s immediate expenses: from the monthly spend on items such as formula, diapers and a baby’s caretaker, to their education.

Investment vehicles that you could consider are a tax-free savings account or a unit trust portfolio, where you are able to have access to the saved funds – as and when you need them. Also, consider short-term to long-term strategies to best meet your family’s financial needs. For example, in saving for the child’s immediate needs – you could invest the money in a portfolio that is suitable for the short- to medium term, while saving for the child’s education can be put in a portfolio that is geared towards a long-term strategy investing in growth assets and equities, considering the investment time horizon and risk profile.

You have indicated that you will have two months’ paid maternity leave. Once the baby is born, you may want to have an extra month at home – so make provision for any extra unforeseen expenses. Furthermore, contact your employer human resources department and ask them about the process of claiming from your UIF (Unemployment Insurance Fund), as well as the expected payment from the fund.

Debt management

It is also important to have a debt reduction plan in place to try to alleviate your debt burden.

Teamwork is key… work together with your husband and find creative ways to see where you can cut down on in the family budget, so that you can have more money to allocate to your savings. I would recommend that you cut back on some luxury lifestyle items and also review your current life policies to ensure that you are adequately insured.

Other debt reduction strategies you could consider is paying more for your car repayments – this will shorten the debt-repayment period and save you on the interest. The same can be applied to your credit card debt as well. You could also start paying off the debt with the lowest debt amount first, tackling your debt one at a time.