A high credit score can make your life much easier, allowing you to qualify for better credit cards, lower interest rates, and more.

By Sally French, Wirecutter
Updated April 13, 2020
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Credit: wera Rodsawang/Getty Images

Having a high credit score is not just about qualifying for luxury credit cards with big rewards. It’s also about making your life a little easier and, over the long term, a little less expensive.

While having a high credit score doesn’t necessarily mean you’re wealthy (and being wealthy doesn’t necessarily mean you have great credit), higher scores can be immensely helpful in building long-term wealth. Here’s why:

  • Good credit can be a factor in getting selected by a landlord to rent the apartment you want.
  • Some employers do credit checks before extending job offers.
  • For larger purchases requiring a loan, such as a house or new car, a good credit score generally correlates with a lower interest rate (which could potentially save you thousands of dollars in interest payments over the life of your loan).

A perfect FICO credit score is 850. Reaching that level is like finding a financial unicorn. Just 1.2 percent of all FICO scores in the U.S. are 850, according to Experian, one of the three major U.S. credit bureaus.

FICO breaks down credit scores into five buckets:

  • poor (below 580)
  • fair (between 580 and 669)
  • good (between 670 and 739)
  • very good (between 740 and 799)
  • exceptional (800 and up)

Don’t worry if you’re not a credit score unicorn yet; consider making an exceptional score one of your financial goals, like building an emergency fund or contributing more to your 401(k).

Why do I have multiple credit scores that are all different? You may find you have many different credit scores, which can be confusing. There are two main credit score model companies in the country: FICO, which most banks use when making lending decisions, and VantageScore, which was developed by the three consumer credit bureaus—Equifax, Experian, and TransUnion.  

From there, there are multiple versions of FICO and VantageScores. Plus, lenders may have their own proprietary credit-scoring systems. In short, there are hundreds of credit-scoring models out there and your scores may differ depending on which model was used. It’s entirely possible to have a 720 FICO credit score when you check your score on your credit card’s website, but a 690 VantageScore credit score when you log onto Credit Karma.

Keep in mind, these are all typically considered “educational scores.” Lenders may not use those scores when making credit decisions, but they can be a helpful guideline to know where you stand. 

Rather than worry about slight differences in your scores, focus on the big picture of boosting your credit scores across the board. Here’s how you can do it:

1. Get Your Own Credit Card, and Use It Correctly

You likely already have one—or even several—credit cards. If you don’t (or if you’re looking to help an older child build credit), you can look into credit cards designed for many demographics, such as students or immigrants. In any case, stick to cards with no annual fees.

Demonstrating good financial habits (like paying your bill on time) with a credit card is one of the best ways to prove to creditors that you’re trustworthy, and it’s an important factor in rebuilding your credit if it has tanked due to a divorce or unpaid medical bills. When you build that trust, creditors are more likely to grant you better borrowing terms, like lower interest rates or perks that entice you to borrow with them (think a credit card that offers rewards or elite status).

2. Consider Becoming an Authorized User If You're Having Trouble Getting Approved for Your Own Card 

If a lender isn’t willing to issue you a credit card (perhaps your scores are too low, or you have an insufficient credit history), you can become an authorized user on a card that belongs to someone else, like your spouse. This strategy works if you know someone who has a good credit history, and that person trusts you enough to add your name to their account.

By becoming an authorized user, you can make charges, but the card’s owner is ultimately responsible for paying the debt (hence, the trust factor comes into play). Most credit cards allow you to add authorized users for no additional charge.

Assuming the credit card issuer reports authorized-user activity to the credit bureaus, then becoming an authorized user on an account in good standing can help your credit, because the characteristics of that original account (such as the age of the account, payment history, and credit utilization rate) will now have an impact on your credit scores. 

Likewise, if you have a good credit score and want to help someone else (like a spouse or older child) build or rebuild their credit, you can add them as an authorized user.

Be cautious if you do, though. You’re now accountable for that person’s debt, so make sure you’ve defined who is responsible for paying the charges that are made to the account. If you miss a payment because they went on a spending spree, your credit scores can drop (lenders don’t care who made which purchase—both of you will get dinged).

To remove an authorized user (you probably don’t want your ex to continue having access to your card), you can typically call your bank and ask to remove them.

3. Keep Your Credit Utilization Rate Low

Credit accounts include various types of debt:

  • Revolving debt is money you borrow against a preset credit limit. As long as you don’t exceed your credit line, you can keep borrowing. (Most credit cards are considered revolving debt.)
  • Installment debt is a fixed amount of money that you borrow in one lump sum, with predetermined due dates and payment amounts. (Student loans or car payments are examples of installment debt.)

With installment debt, focus on making your regular payments consistently and on time. But with revolving debt, focus on keeping your credit utilization ratio low; your so-called credit utilization ratio comprises 30 percent of your FICO credit score. If you are using too much of your credit, banks may view you as a risky customer. 

Your credit utilization ratio is how much revolving debt you owe divided by your total credit limit (to increase your scores, you want to use a small percentage of your total available credit).

To figure out your credit utilization rate, divide your outstanding balance by your credit limit. Let’s say you owe $2,000 in credit card debt and have a total credit limit of $10,000. Here’s what that calculation looks like:

2,000 ÷ 10,000 = 0.2

When you multiply that figure by 100, you arrive at your credit utilization ratio—which, in this case, is 20 percent.

It’s best to keep your credit utilization low. Most creditors don’t like to see it higher than 20 percent to 30 percent, for both your total credit limit and an individual card's limit. Exceeding that may indicate to lenders that you’re having trouble managing your finances.

With that said, here’s how you can keep that debt-to-credit ratio low.

4. Start Managing (and Paying Down) Your Debt

Paying down debt can be tough, and having debt is completely normal. Among Americans who held at least one credit card with a balance at the end of 2018, the average balance owed was $5,700, according to the Consumer Financial Protection Bureau's 2019 Consumer Credit Card Market Report.

Acknowledge your debt and make a plan to tackle it. Look at your current balances, budget, and income, and figure out a way to make those things work to repay what you owe. If you can pay off your debt in a few months based on your existing budget and income, that plan could be as simple as setting up automatic payments.

If your debt is bigger, consider applying for a balance transfer credit card to give yourself a longer period of zero percent APR, which you can use to pay down as much debt as possible without accruing more interest (you may be charged a percentage of what you transfer as a one-time fee). Though, those cards are generally reserved for people who already have excellent credit.

One more idea: You’re likely paying interest on those cards, so try requesting a lower APR (it’s as simple as calling your credit card company). It works more often than you might think. A 2018 survey by CreditCards.com found that 56 percent of people who asked for a lower interest rate got one.

5. Increase Your Available Credit by Asking for a Credit Line Increase

An increase in your credit limit can decrease your credit utilization ratio, which is good for your credit scores. Just don’t use it as a ticket to spend recklessly, as that would defeat the purpose. For this to work in your favor, your spending should remain the same.

There are two ways to increase your available credit:

  1. Apply for another credit card.
  2. Contact your card issuer to ask for a credit line increase.

Applying for a new card almost always results in a hard inquiry on your credit report, which can have a negative, albeit temporary, impact on your scores. Asking for an increase on an existing card may or may not result in a hard inquiry, so confirm with your bank if you’re concerned about it.

While you may see a slight dip in your credit scores for initiating a hard inquiry, increasing your total credit limit is likely to help your credit scores in the long run.

6. Check Your Credit Report for Errors or Unusual Information

You might know your credit scores, but you might be less familiar with your credit report, which you can (and should) look at regularly. Your credit report is like a financial scrapbook, containing information such as previous employers and addresses. Reading through it can be somewhat of a fun walk down memory lane.

To get your credit reports, visit AnnualCreditReport.com. Owned and maintained by the three major credit bureaus (Equifax, Experian, and TransUnion), the site gives you free copies of all three of your reports once a year. Or, create an account with Credit Karma, which offers free credit reports from two of the major credit bureaus, TransUnion and Equifax. 

Once you receive your reports, read them. Confirm that the information in there is accurate (for example, do you actually hold all of those credit cards, or did someone fraudulently open one in your name?). If you catch an error, contact the credit bureau through its website to file a dispute (though filing a dispute doesn’t necessarily guarantee a positive outcome). An incorrect address likely won’t affect your creditworthiness, but if you have a collections account on your report that should have dropped off might have a big impact.

Reading your report can also remind you of credit accounts you may have forgotten about. Maybe you notice that your old Gap retail card is still open, but you haven’t used it in years. Consider closing old accounts.

7. Build Good Credit Card Habits

One of the most important things you can do is pay your bills on time. That could mean setting up autopay, putting a reminder in your calendar, creating an alert on your phone—whatever works for you so that you don’t forget.

Continue to keep your balances low, and pay down your debt as much as you can.

Keep practicing good habits. While you can make moves now to improve your credit, reaching that elusive 850 is a long-term endeavor.

Sally French is a staff writer at Wirecutter, covering personal finance. Previously she spent five years writing for MarketWatch, where she reported on everything from comparing meal kit costs to detailing her own personal experience buying a home in San Francisco. Her personal finance stories have appeared in The Wall Street Journal, The New York Times, and many other publications. You can find her on LinkedIn, Twitter, Facebook, and Instagram.

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