Credit Scores Demystified: What They Mean and How to Improve Yours
When it comes to credit scores, many people think that reaching 800—or even 850—is the ultimate goal. But is that score really necessary to get the best financial opportunities? Experts weigh in with their opinions on what a good score looks like, why it matters, and what to focus on instead.
What is a Credit Score, and Why Do We Care?
A credit score is a three-digit number, typically between 300 and 850, that helps lenders, landlords, insurance companies, and sometimes even employers determine how reliable you might be with credit or financial responsibility. Think of it as a quick snapshot of your financial habits. The higher the score, the lower the perceived risk—at least, that’s the general idea.
Credit scores are primarily based on your payment history, the amount of debt you carry, and the length of your credit history, along with factors like how much credit you’ve applied for recently. According to Equifax, there isn’t a "magic number" that guarantees you the best financial terms, which is part of why aiming for the perfect score may not be necessary.
What Do the Experts Say?
Some financial experts believe that striving for a perfect 800+ score isn’t worth the effort. Consumer finance expert Clark Howard is one of those voices. He suggests, “There are people who want to be at 850… I don’t get it. You’re crazy if you obsess with an 800 or 850 credit score.” Howard challenges the notion that higher scores equate to better financial health, emphasizing that a score in the mid-700s is usually more than sufficient.
Ted Rossman, a senior industry analyst with Bankrate, agrees, noting, “Once you’ve hit the mid-700s, you’re good… You don’t need a perfect 850.” According to Rossman, a score of around 740 to 750 can still qualify you for the best rates on loans, including mortgages.
On the other hand, Dave Ramsey argues that credit scores themselves shouldn’t define your financial success. “A high credit score does NOT equal success,” says Ramsey, pointing out that focusing solely on a high score can distract from larger financial goals, such as becoming debt-free.
What’s Considered a Good Credit Score?
Credit scores fall into general ranges, which can help provide perspective:
- 800-850: Excellent credit. These scores can offer the best possible loan terms but aren't necessary to qualify for great rates.
- 740-799: Very good credit. Most lenders consider this range safe, and you can typically qualify for strong rates.
- 670-739: Good credit. Many lenders view this range as acceptable, though interest rates may not be the lowest available.
- 580-669: Fair credit. You might face higher interest rates, and certain loans may be harder to obtain.
- 300-579: Poor credit. New credit may be challenging to obtain, and high interest rates are more common.
Given these ranges, most experts advise that once you reach 740 or higher, you're in a good position to access favorable rates and loan options without needing a perfect score.
Why Your Credit Score Matters Beyond Loans
While it’s tempting to think credit scores only matter when it comes to loans, they affect other areas too. Ted Rossman explains, “Credit scores determine who gets the best cell phone plans and who has to make bigger deposits to get utilities.” For example, insurers often look at credit scores to set auto and homeowner premiums, and landlords may use them when screening tenants. That’s why it’s essential to maintain a strong score, even if it’s not 800 or above.
Simple Habits to Improve Your Score
You don’t need to aim for perfection, but building good credit habits can still offer peace of mind and help you achieve financial goals. Here are a few tips:
- Pay on Time: Late payments are one of the biggest factors lowering your score, so timely payments are key.
- Keep Balances Low: Keeping your credit card balances well below the limit can improve your score.
- Apply for Credit Sparingly: Applying for new credit too frequently can lower your score.
- Use Credit-Builder Tools: For those with little to no credit, secured credit cards like Nuvision Credit Union’s Visa® Share Secured Card can help establish or rebuild credit without high interest rates.
The Bottom Line: Good Enough is Good Enough
Aiming for a high credit score can be worthwhile, but most experts agree that obsessing over a perfect 850 isn’t necessary for financial success. Once you’re in the mid-700s, you can rest assured that your score will support you in getting favorable terms on credit products. Instead of chasing a perfect score, focus on managing your credit wisely, which will give you the freedom and options you need.
