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If you’re applying for financial products that require good credit, you may be wondering if you can qualify with your current credit score. Fair, Isaac and Company — aka FICO — is a predominant credit-scoring service that assesses your credit history and provides you with a score ranging from 300 to 850. FICO® Scores are most often used by lenders when deciding your eligibility for credit products.
It’s important that you know your credit score before applying for a credit product such as a credit card or loan. That way, you can choose the right product for your score and minimize the odds of your application being rejected.
FICO Score ranges: From ‘poor’ to ‘exceptional’
FICO Scores range from 300 to 850, and the individual credit ranges (poor, fair, good, very good and exceptional) vary between the three major credit bureaus — Experian, TransUnion and Equifax. For this guide, we’ll use the FICO Score ranges provided by Experian:
While a good FICO Score is nothing to complain about, you may be trying to bridge the gap to an excellent FICO Score to qualify for the best credit cards and credit terms. To achieve an excellent FICO Score, follow the credit-building tips below that may help you reach your goal.
3 tips for improving your FICO Score
Credit-building tips are linked to the five key factors affecting your credit score. Before you can improve your credit, you should be familiar with the factors affecting your FICO Score:
- Payment history (35%): Whether you pay on time
- Amounts owed (30%): How much credit you use compared to your total credit limit across all accounts
- Length of credit history (15%): Average length of time your credit accounts have been open
- New credit (10%): How often you open new accounts and have credit inquiries
- Credit mix (10%): The variety of credit products you have (credit cards, loans, mortgages, etc.)
The credit-building tips listed below can help you improve your credit score.
1. Pay your bills on time and in full each month
Since payment history is the most important factor of your credit score, you should always pay your bills on time each month. It’s also a good habit to pay in full so that you avoid carrying a balance from month to month and incurring interest charges.
2. Maintain a low utilization rate
Utilization is the amount of credit you use divided by the total amount of credit you have.
This means that if you have one credit card with a $2,000 limit and another with a $3,000 credit limit, your total credit is $5,000. If you spend a total of $4,000 a month across both cards, your utilization would be 80% ($4,000 divided by $5,000). This utilization ratio is extremely high. It’s generally recommended to keep it below 30%. In this case, spend less than $1,500 of your credit limit to maintain a healthy credit utilization ratio.
3. Minimize the amount of new accounts you open
The average length of your credit history will be affected by opening several new accounts in a short period. For example, if you have a credit card that’s 10 years old and open a loan today and another credit card tomorrow, your average length of credit history will drop to a little over three years.
Only time will improve your length of credit history. Opening new accounts also affect the new credit aspect of your credit score, since that considers how often you open accounts and the number of inquiries you have.
Read our guide on using a credit card to build credit here.