How to Get to the Next Credit Score Level

The three little numbers in your credit score can have an outsized impact on your ability to accomplish major tasks in life, like renting an apartment and getting favorable terms on a car loan. Your credit score can also shape your confidence around your personal finances. Given their significance, you might feel like a score that locks you out of your goals is insurmountable.

But those numbers aren’t carved in stone. By changing certain habits, like paying your bills on time and regularly checking your credit report, you can swing those numbers more in your favor. Making smart moves over time can help you move up the credit score ladder until you can ring the bell of a good, very good, or even excellent score.

But those numbers aren’t carved in stone.

The first move is understanding where you currently stand.

Know Your FICO® Score

Though there are a few different kinds of credit scores, most lenders and creditors will look at your FICO® score. Considered the industry standard, this score was first created by the Fair Isaac Corporation (FICO) and is calculated using information from your credit reports at the three major credit bureaus: Equifax, Experian, and TransUnion.

FICO® scores generally fall into these ranges:

Poor: 300–579
Fair: 580–669
Good: 670–739
Very Good: 740–799
Exceptional: 800–850

For what it’s worth, though FICO® calls its highest range exceptional, this range is often informally referred to as excellent. Higher scores are more desirable because they show that you’re a lower risk to lenders, which can help you qualify for better interest rates and loan terms.

If your score falls in the poor, fair, or even the good range, you have room to improve it. You just need to know what to focus on as you climb each rung of that credit ladder.

Poor to Fair: Fix the Problems Dragging Your Score Down

When your credit score is below 580, your biggest opportunities for growth are often the most basic ones: Get current on your accounts and stop adding new negative information to your credit history.

Start by making sure your payments are up to date. Payment history is one of the most important factors in your FICO score, so a pattern of missed or late payments makes it difficult for your score to recover.

Contacting your creditors when you’re already behind on payments can be intimidating, but you might be surprised to find that sometimes they’re willing to work with you on a payment plan or other options to get current. Once you’re caught up, make staying current a priority.

It’s also worth checking your credit reports for errors. An account that doesn’t belong to you, an incorrect balance, or a payment incorrectly reported as late could be hurting your score through no fault of your own.

At this stage, don’t worry about complicated credit-score optimization. Your first goal is to stop negative information from piling up on your credit reports while establishing a clean pattern of payments.

Fair to Good: Build Consistency

Moving from a poor score to a fair score is worthy of celebration. It may not seem like much, but it’s still a shift in the right direction. Just stay consistent with your improved habits.

Now, it’s time to be selective about applying for new credit. It isn’t a problem to apply for a card or a loan you truly need, but opening several new accounts in a short period can result in multiple hard inquiries. That’s not a good look for your credit profile, at least to lenders.

You should also consider the age of your accounts. Older accounts can contribute to a longer credit history, which can be a good thing. So, don’t automatically close an old credit card simply because you don’t use it often. Of course, there can be good reasons to close an account, particularly if it has an annual fee or no longer fits your needs. Closing accounts solely to simplify your credit life, however, isn’t always the best move for your score.

Above all, remember that credit improvement takes time. At this stage, consistency is more valuable than a quick fix.

Good to Very Good: Fine-Tune Your Credit Profile

You’ve reached the good range. This is a huge milestone. Be proud of yourself and all your hard work. To make the jump to very good, you’ll have to start paying closer attention to details that might’ve mattered less when you were rebuilding damaged credit.

Start with your credit utilization. If you’re consistently using a significant portion of your available credit, bring those balances down. Think of it this way: If you have a credit card with a $5,000 limit and a $3,000 balance, you’re using 60% of that available credit. Paying the balance down to $1,500 would bring your utilization on that card to 30%.

Remember, you don’t have to carry a balance to build credit. If you have the money to pay your credit card bill in full, doing so can help you avoid interest while still showing that you can responsibly use credit. To keep your reported utilization lower, you may also consider paying down the balance before your issuer reports it to the credit bureaus.

You may also use this milestone to take a look at your credit limits. If you’re eligible for a higher credit limit on an existing card, it could lower your utilization, as long as you don’t increase your spending along with it. However, you’ll want to ask your issuer whether requesting a credit-limit increase would result in a hard inquiry.

Meanwhile, you should also be selective about new credit. If you’re applying for a mortgage or another major loan soon, for example, now isn’t the time to experiment with your credit profile by applying for a bunch of new cards. Every new account could potentially impact your average account age and might generate a hard inquiry.

When you’re already in the good range, you’re not asking yourself, “How do I rebuild my credit?” Instead, ask, “What small changes could make my existing credit profile stronger?”

“What small changes could make my existing credit profile stronger?”

Very Good to Excellent: Protect What You’ve Built

Once you’re in the very good range, you’ve climbed pretty high. But you’re not done yet. Now, improving your score may require more patience and consistency than dramatic action.

Keep your utilization especially low if you can. You don’t need to carry a zero balance on every card at all times, but keeping your reported balances relatively low can help your credit profile.

At this stage, you’re mostly building on your good habits. When you do make changes, keep your oldest accounts in mind. If you have several cards and think you should close one to make things more manageable, an older account may be more valuable to your credit history than a newer one. Look at the age and purpose of your accounts before making a decision.

Monitoring your credit reports is always important, but the higher your score gets, the more there is to protect. Take yourself on a monthly credit report date, where you sit down with a drink of choice and go through your credit reports from each credit bureau.

Most importantly, don’t panic over small fluctuations. Your score may move up or down even when your financial habits haven’t changed. A few points generally aren’t worth making a major financial decision.

Your Credit Score Is a Moving Target

As much as you’d like to strap a financial jet pack to your back and surge up the credit ladder to a perfect score, improving your credit takes time and patience. You need to figure out what’s holding your score back and address the factors you can control. Mostly, you need to show yourself compassion throughout the process and congratulate yourself on every win.

Show yourself compassion throughout the process and congratulate yourself on every win.