Generally speaking, the higher your credit score, the the better off you are when it comes to getting a loan.
The FICO score, the most popular scoring model, ranges from 300 to 850. A “good” score is generally above 670, a “very good” score is above 740, and anything above 800 is considered “exceptional.”
Once you hit that 800 mark, you’re highly likely to be approved for a loan and qualify for the lowest interest rate, according to Matt Schulz, chief credit analyst at LendingTree.
There is no doubt that consumers are turning to credit cards these days because it is more difficult for them to keep up with their spending and there are many factors at play, he added. inflation. But an exceptional loan is largely based on how well you manage your debts and for how long.
Earning an 800-plus credit score isn’t easy, he said, but “it’s definitely achievable.”
Although considered “good,” an “outstanding” score can unlock even better terms and potentially save you thousands of dollars in interest fees.
For example, borrowers with credit scores between 800 and 850 could lock in a 30-year fixed mortgage rate of 6.13%, but those with credit scores between 700 and 750 jump to 6.36%. up to an additional $19,000, according to data from LendingTree.
Here’s a breakdown of the four factors that play into your credit score and ways to improve that number.
1. Timely payments
The best way to get your credit score above 800 is to pay your bills on time every month, even when the minimum payment is due. According to LendingTree’s analysis of 100,000 credit reports, 100% of borrowers with a credit score of 800 or higher paid their bills on time every time.
Prompt payments are the most important factor, accounting for roughly 35% of a credit score.
To get there, set up automatic payment or reminders so you’re never late, Schulz advised.
2. Amounts Due
From mortgages to car payments, having an exceptional score doesn’t mean zero debt, but rather a proven track record of managing a mix of outstanding loans. In fact, consumers with the highest scores owe an average of $150,270, including mortgages, LendingTree found.
The total amount of credit and loans you use compared to your total credit limit, also known as your utilization rate, is the second most important aspect of a great credit score—it makes up about 30%.
As a general rule, this is important keep revolving debt below 30% of available credit limit the effect that high balances can have. The average utilization ratio for those with a credit score of 800 or higher was just 6.1%, according to LendingTree.
“While the best way to improve this is to reduce your debt, you can also change the other side of the equation by applying for a higher credit limit,” Schulz said.
3. Credit history
A longer credit history also helps boost your score because it gives lenders a better look at your background when it comes to repayments.
The length of your credit history is the third most important factor in a credit score, accounting for about 15%.
Keeping your accounts open and in good standing, as well as limiting new credit card inquiries, will benefit you. “Lenders want to see that you’ve been responsible for a long time,” Schulz said. “I always compare it to a kid borrowing the car keys.
4. Types of accounts and credit activity
Having a diversified mix of accounts, but also limiting the number of new accounts you open will further help improve your score, as each accounts for about 10% of your total.
“Your credit mix should include more than just having multiple credit cards,” Schulz said. “The ideal credit mix is a mix of installment loans, such as car loans, student loans and mortgages, with revolving loans, such as bank credit cards.”
“But it’s very, very important to know that you shouldn’t take out a new loan just to help your credit mix,” he added. “Debt is really a serious matter and should only be taken on when necessary.”