Credit scoring can feel like an abstract concept. It’s tough to think in concrete terms about how a few points can impact your ability to get a loan or a credit card.
For example, what could adding 100 points to your credit score actually mean to your finances? If you’re not sure, take a look at the details below – you might be surprised at what you find!
How does credit scoring work?
Before discussing the impact of tacking points onto your score, let’s take a minute to review how credit scoring works.
Your FICO score (the most commonly used credit score in the United States) uses a scale of 300-850 to rate consumers on their creditworthiness. The higher your score, the better. The FICO model uses the following five factors to determine your score:
- Payment history – Are you paying your bills on time? This accounts for 35% of your score.
- Amounts owed – How much do you owe on your credit accounts in relation to your available credit? This accounts for 30% of your score.
- Length of credit history – How long have you been using credit? This accounts for 15% of your score.
- Mix of credit accounts – Do you have a variety of different credit accounts on your credit report? This accounts for 10% of your score.
- New credit inquiries – Are you trying to apply for too much credit at once? This accounts for 10% of your score.
What adding 100 points to your credit score could mean
Adding 100 points to your credit score is significant, but what it could mean to your finances depends on your starting point. With that in mind, here are some possibilities if your original score was:
500 – With a credit score of 500, you probably found it almost impossible to qualify for a credit card or loan. To be clear, 600 still constitutes poor credit in the eyes of most lenders, and you’ll likely have to pay a high interest rate on the credit products you manage to obtain.
But making the jump to a 600 credit score will give you a reasonable chance of getting certain credit cards. If you do, using plastic responsibly will help boost your score even further. It might not seem like much, but going from 500 to 600 will position you for future financial growth.
600 – Adding 100 points to a credit score of 600 will open a lot of financial doors. Once your score hits 700, you’ll be able to qualify for credit cards that require good credit. This is great news, because these cards tend to come with rewards programs (unlike most of the cards for people with poor credit). You can start racking up points or cash back with every swipe!
Also, with a credit score of 700, most banks will agree to offer you other types of financing without requiring a cosigner or charging a sky-high interest rate. It’s likely you’d even be able to obtain a mortgage.
700 – Bumping a 700 credit score up to 800 will put you in the big leagues. With a credit score this high, you’ll get approved for nearly every credit card on the market (assuming your income is high enough). This means you can get a card that offers primo rewards, including some of the more exclusive travel credit cards.
A credit score of 800 also means that you can get the most favorable terms on almost any loan you apply for. In other words, having good credit means that you can borrow cheap!
Tips for pumping up your score
If you’re excited about the possibilities that will open up with the addition of 100 points to your credit score, you’re itching to get to work on your score. If so, here are the Nerds’ top tips for improving your credit:
- Pay your bills on time – No exceptions! This is the most important thing you can do for your score.
- Keep your credit utilization low – Don’t use more than 30% of the available credit on any of your cards at any time.
- Use credit early and consistently – The easiest way to do this is use your credit card for as many purchases as you can and pay it off every month.
- Borrow sparingly – Applying for several loans or credit cards in the span of a month or two will ding your score. Only apply for credit you really need, and put a lot of space between new applications.
- Check your credit report at least once per year – Mostly, you should be reviewing your credit report for errors. If you see one, take steps to have it corrected.
The bottom line: Adding 100 points to your credit score could have a big effect on your financial life. Use the Nerds’ top tips to get to work on your score today!
Climbing credit score image via Shutterstock