Benefits of an excellent credit score
Excellent credit makes life easier and less expensive. Here are the biggest benefits of having an excellent credit score:
- You can qualify for the best credit cards. These cards tend to have more perks than credit cards for consumers with lower credit scores. Your credit score doesn't guarantee an approval, but it's one of the most important factors credit card companies look at during the application process.
- You can get lower interest rates and potentially be approved for larger amounts on loans. This includes all types of loans, including personal loans, auto loans, and mortgages.
- Credit card companies may approve you for higher credit limits.
- You have a better chance of passing a credit check with a rental company, which helps when looking for a house or apartment to lease.
- In most states, car insurance companies can use your credit when determining your premiums. Excellent credit can get you lower car insurance rates.
- Utilities companies are less likely to require a security deposit to set up service with them.
Your credit score is almost certainly going to play a major role in your personal finances. That's why a high credit score is a smart financial goal.
Do you need excellent credit?
No, you don't need excellent credit. It doesn't hurt, but a good credit score can be more than enough.
A FICO® Score of at least 720, which is within FICO's good credit score range, will get you most of the same benefits as excellent credit. You should have no trouble passing a credit check or securing low interest rates on a loan. Your credit score will also be high enough to qualify for most credit cards on the market. Keep in mind that a high credit score never guarantees an approval.
The only area where an even higher credit score can help is a mortgage. To get the lowest mortgage interest rates, it typically takes a FICO® Score of 760 or higher. That's still below the threshold for excellent credit, though.
How to raise your credit score
If you want to increase your credit score, follow these tips:
- Always pay your bills on time. A rock-solid payment history is a must. Make sure you have at least one credit card that you use regularly and pay by the due date. Not every type of bill gets reported to the credit bureaus and counts towards your payment history, but credit card bills do.
- Keep your credit utilization ratio low. A credit utilization of below 30% is the most common recommendation. To figure out how much this is, add the credit limits on all your credit cards together. Multiply that number by 0.3. Try to keep your credit card balance below that amount at all times. Remember also that the lower your credit utilization is, the better.
- Build the length of your credit history. Avoid closing the credit cards that you've had the longest. If a card has an annual fee that you don't want to pay, see if you can downgrade the credit card instead of canceling it. It's fine to open new credit cards, but be selective, because each one will lower your average credit account age.
- Don't apply for new credit too often. Every time you apply for new credit, it results in a hard inquiry on your credit file. Too many hard inquiries can prevent your score from increasing. A good guideline is to not apply for new credit more often than every six to 12 months. See our guide on whether applying for a credit card will hurt your credit.
These financial tips work no matter what your current credit score is. The same advice applies to building credit whether your score currently sits in the bad credit or good credit range.
It does, however, take more work if your goal is excellent credit. You can stick to the same general rules, but it may be necessary to aim even higher with them. For example, instead of just keeping your credit utilization ratio below 30%, you could need to get it below 20%. You also might need to add a year or more to your credit history and maintain a track record of on-time payments.
Although excellent credit is nice to have, you probably don't need it. There aren't any new benefits that come along with having a FICO® Score of 800 instead of 760. But the steps you need to follow for an excellent credit score are smart financial habits regardless. Whether you end up with excellent credit or not, they'll get you a credit score high enough for everything you need.
