The ideal credit score is one that allows you to access the most competitive interest rates on financing, whether it’s a mortgage, a car note or another type of loan. This number can be something of a moving target, as lenders tighten or loosen their underwriting guidelines, but you should do all you can to improve your credit in advance of seeking a loan.
The three major credit agencies, Experian, TransUnion and Equifax, compute credit scores using slightly different models. The score generated by the Fair Isaac Corporation, your FICO score, is the one generally used by most major lenders. The top credit score you could possibly have, if you had a lengthy credit history with no sort of blemish, is 850. The lowest score is 300. Clearly, few if any people have a score at the theoretical perfect level.
A Good Score
As of 2011, most mortgage lenders will only offer their best rates if your score is at or above 740. If you have achieved this level, you should be sure to maintain it by continuing your excellent payment record, but it is not necessary to take strenuous measure to improve your credit, as you will achieve little extra benefit. If your score is between 620 and 740, you should qualify for a loan without any problem, but you probably won’t secure the best rate. Below 620, you may find yourself shopping around before you can get approved.
If your score is below that ideal 740, you can take many measures to improve your credit. If you are planning to apply for a mortgage or other major loan, begin working on your credit well in advance, as some improvements can take a while to work into your score. The first step to take is to make all of your payments on time. If possible, put as many of your monthly bills on automatic payment from your bank account so that you never ding your credit simply by forgetting a bill.
Don’t apply for new credit – especially unsecured accounts such as credit cards – when you are trying to improve your score. Instead, concentrate on paying down existing balances so that you improve your debt-to-available-credit ratio. Be sure to keep open your oldest credit card account, and use this one in preference to the others; the age of your credit history has an effect on your score. Use your credit card regularly, but pay off the balance each month if you possibly can.