Most teens spend their 18th birthday buying lottery tickets, going out on the town, or buying a pack of smokes or a vape pen. But no us. On my 18th birthday I was focused on building an excellent credit score.
I had seen my mom's credit card get declined too many times to understand I would need to have excellent credit if I ever wanted to buy my own place
Back then, I didn't know what was considered an excellent credit score, but I knew I wanted one.
In high school, I worked at Circuit City (a now-defunct electronics mega store) selling computers. Think Best Buy except a little darker inside. My twin worked at a local grocery store pharmacy.
When we both got home from work on our 18th birthday, we quickly celebrated 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.
Establishing Credit Early Helped Us Get Excellent Credit Scores
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 knew our mom would never qualify as a co-signer when we were ready to move out of our college dorms. 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. Success.
We treated our credit card with respect and never paid for anything we couldn't pay off in full that month.
This is what I've learned about excellent credit over the past 12+ years.
You Don't Need A Credit Score Of 850 To Have An Excellent Credit Score
Experts agree 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.
Heck, almost anything would be a better use of your time than trying to get your score up to 850.
Why Is A Credit Score Of 760 Considered An Excellent Credit Score?
The reason a credit score of 760 or higher is considered an excellent credit score is that in the eyes of lenders, you’ve reached the highest level.
With a score of 760, you will already have access to the lowest interest rates, the best credit cards, and the 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 million dollars. Can't you just be happy with a billion?!
You already have more than enough, so any energy spent on getting that extra million 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, student loan refinancing, 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. An interest rate that high would mean your balance could quickly spiral out of control if you don't pay it off.
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 An Amazing Credit Score 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, I'm not advocating that you go and start to borrow money for all of your purchases just because you get a low rate.
I personally, 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 save money.
And I ALWAYS pay them off in full every month. I have auto-pay set up so the full balance is taken care of. I just have to login to the portal every month to check for fraudulent purchases. That's it.
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. It's called Chase Credit Journey, 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.
Remember to never pay for a credit score or credit report. You can get that online for FREE.
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 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 my credit score from CreditKarma this morning.
All I did was continue to focus on the basics of paying everything on time and keeping my utilization low.
I have an excellent credit score. But I'm not too excited that I'm above 800, since I already passed 760 long ago.
And that, my friend, 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.