On your 18th birthday were you focused on building an excellent credit score?
Some teens spend their 18th birthday buying lottery tickets, going out on the town, or buying a pack of smokes or a vape pen.
But not us.
No, we went to our after-school jobs so that we could make some spending money and help pay some of the bills at home. At the time we didn't know what was considered an excellent credit score, but we knew we wanted one.
One of us worked at Circuit City (a now-defunct electronics mega store) selling computers. The other worked at a grocery store pharmacy as a pharmacy technician.
When we both got home from work, we quickly celebrated our birthday by sharing 2 mini Hershey’s sundae pies from Burger King, and then huddled around the family computer to apply for our first credit card. Sounds like a blast, eh?
Thankfully, our quest for a credit card ended up being key to establishing nearly perfect credit as adults.
We knew that since we were adults in the eyes of the financial world, we’d need to establish good credit.
Our backs were against the wall and we didn't want to be poor forever. At the time we didn’t fully understand why it was important. But we’d seen too many customers get rejected for credit cards at our jobs to know we didn’t want that in our future. So we searched online for a good credit card and crossed our fingers.
When the approval letters came in the mail we could hardly believe it.
With a credit line of $300, we each now had the first credit accounts that would show up on our credit reports.
You Don't Need A Credit Score Of 850 To Have An Excellent Credit Score
What we’ve now learned over the years, is that a credit score above 760 is considered an excellent credit score.
Credit scores range from a low of 300 up to a perfect 850. It may seem confusing that you can have a score 90 points below perfect and still have excellent credit, but it’s true.
In fact, if you already have a score of 770 and are looking for a way to get your score to 800, you are wasting your time.
Having a bullet proof budget wouldn't hurt either.
Why Is A Credit Score Of 760 Considered An Excellent Credit Score?
The reason 760+ is considered an excellent credit score is that there are not many benefits to have a higher score once you’ve reached that level.
With a score of 760, you will already have access to the lowest interest rates, best credit cards, and best payment terms with most lenders.
In their eyes, you have an ‘A+' already. Doing extra credit won't raise your grade any higher.
It’s kind of like having $2 billion in the bank and wishing you had an extra billion dollars.
You already have more than enough, so any energy spent on getting that extra billion dollars won’t bring you additional benefits, and surely won’t bring you any more happiness.
Spend that time and energy doing something that you love or is actually important, like helping those that are less fortunate or giving money to charity.
That’s why it’s important to know what is considered an excellent credit score!
It’ll help you make the most of your limited amount of time and energy!
Why Does Having Excellent Credit Matter?
Having excellent credit is important for a few reasons.
For starters, it can save you money. You see, your credit score essentially helps lenders determine how risky it is to issue you a new auto loan, mortgage, line of credit, credit card, or any other type of loan.
If you have a low score, it signals to them that you potentially don’t have good money habits. Or that you don’t make all of your payments on time. Or simply, that you don’t have an extensive borrowing history for which to base their decision off of.
To make up for the risk of having less-than-excellent credit, the lenders will simply increase the interest rates they offer you.
This means your credit card might have an interest rate of 25%, which is crazy high.
Or it might mean you’ll pay an extra $10,000 on a mortgage over 30 years compared to someone with an excellent credit score. Or you’ll pay more if you decide to go buy or lease a car. If you are considering buying or leasing a car, make sure you negotiate like an all-star to get the best deal possible.
Consumer interest rates are an ugly side of the financial world because it’s often the case that the people with the least money and resources end up paying the most.
Having Amazing Credit Will Get You The Lowest Interest Rates
But since that’s the way the system works, you need to learn how to play the game to get the lowest rates.
And no, we aren’t advocating that you go and start to borrow money for all of your purchases just because you get a low rate.
In fact, other than student loans, we are both 100% debt free. We simply use credit cards for regular purchases in order to get the extra security and protection, as well as getting cash back rewards to help us save money.
And we pay them off in full every month. We essentially use our credit cards like debit cards, never spending more than we allocated in our budgets.
However, if you ever have plans to purchase a home, having an excellent credit score will save you money since very few people will or should pay for a house in cash.
What Should I Do If I Don’t Have What Is Considered An Excellent Credit Score Of 760+?
First, take a deep breath because thankfully, this won’t make or break your life.
Yes, having an excellent credit score will save you money and give you access to better deals, but it’s not even the most important financial thing you should worry about.
For example, knowing your monthly savings rate is more important, since that will actually impact your long-term quality of life. Don’t have and use a monthly budget or spending plan? You need one before you start to worry about your credit score.
Ultimately, 35% of your credit score is determined by your payment history, and having a budget is your first line of defense to ensure that you’ll always have enough to make on-time payments.
However, this also doesn’t mean that your credit doesn’t matter and that you should ignore it.
How To Increase Your Credit Score
In order to get what is considered an excellent credit score, you need to understand how credit scores are calculated.
The main factors that are taken into account to calculate a credit score are below:
- 35% of your score is based on payment history
- 30% is based on percent of total credit used
- 15% is based on the average age of all accounts
- 10% is based on new credit applications and credit inquiries
- 10% is based on the number and type of credit accounts
1. Check Your Credit Regularly
The first thing you’ll need to get started is your credit report to see your score and history.
This will help you identify what you can do to improve your score. We use CreditKarma to check our scores and history.
More specifically, we use their phone app. We also recently saw that Chase Bank has an awesome tool for checking your credit history. But you might need to have an account with them. Both are free.
We also check our credit reports annually at annualcreditreport.com.
They are the only company authorized by the government to issue your official credit reports . We recommend you request 1 report at a time since there are three major credit reporting bureaus. This means you can check a different one every 3-4 months to check for fraudulent activity.
You only get 1 free report per agency per year.
You should note that your credit report will NOT have your credit score in it. That's why we love CreditKarma.
2. Create A Plan To Optimize Your On-Time Payments & Lower Your Utilization
Once you have your report in hand, you’ll be able to see your payment history, credit utilization, account ages, inquiries, and number of accounts.
This will help you see where there’s room for improvement. It can take years to get your score up to 760 if you are starting at a much lower number, so just be patient.
Getting what is considered an excellent credit score is a marathon, not a sprint.
There are no quick fixes here unless you find fraud on your account that is dragging you down.
If that's the case, make sure you report inaccuracies to the bureaus immediately to have them corrected.
Remember, Anything Above A 760 Is Considered An Excellent Credit Score
Spending your time hoping to get to an 800 is a waste of time.
What you’ll likely see is that once you get to 760 you’ve already established good habits that will naturally propel you to those higher numbers.
Even without you ever having to think about or worry about it. For example, here’s a snapshot of one of our credit scores from CreditKarma this morning.
All we did was continue to focus on the basics of paying everything on time and keeping our utilization low.
You can see the details below. We have excellent credit scores. But we aren’t too excited that we hit 800, since we already passed 760 long ago.
And that, our friends, is what actually matters if you want an excellent credit score.
Camilo is a personal finance expert who was raised in poverty by a single mother and had to learn everything about personal finance on his own. In addition to running The Finance Twins with his twin brother, he has been featured on Forbes, Business Insider, CNBC, US News, The Simple Dollar and other top publications. Camilo began his career as an investment banking analyst on Wall Street at J.P. Morgan. He has a master of business administration (M.B.A.) degree from Harvard University and a Bachelor of Science in finance from the Wharton School of Business at the University of Pennsylvania. You can contact Camilo here or via Instagram @thefinancetwins.