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Like many people who set money goals for 2021, you may have your eye on a better credit score. But it can feel like such a big job that it’s hard to know where to start. Try breaking it down into smaller tasks you can check off, one per week:
The first part of your credit journey is finding the “you are here” spot on the map. From there you can set a realistic, achievable goal and see how fast you’re getting there.
Your starting point is your current credit score, which is a three-digit number, usually on a scale of 300 to 850.
There are plenty of ways to get a free credit score. It’s possible you already have access — many credit cards, financial institutions and personal finance websites offer them.
When signing up for a score, you’ll be asked for your first and last name, Social Security number, address and birth date.
After that, you’ll be presented with a series of multiple-choice questions to verify your identity. Because the questions are intended to be ones only you can answer, they can be tough. It will help to know approximate amounts of regular monthly payments you've made on credit accounts, previous addresses and roughly when credit accounts were opened and closed. Enter data carefully; in the event that you cannot correctly answer verifying questions, you may have to wait for up to 30 days to try again.
Once the verification questions are answered correctly, you should have access to your credit score.
Expect to see some context for your free score — not just the three-digit number. Knowing whether you are close to moving up to the next or already comfortably where you want to be can help you set a reasonable, achievable goal.
A solid score is not just bragging rights: It can mean being able to borrow money at a reasonable interest rate, for things like a car, house or even cash in the event of an emergency. It may also help you qualify for a better deal on a cell phone, get the apartment you want, save money on car insurance and avoid having to put down deposits for utilities.
If you are new to credit or haven’t used it in a long time, there may not be enough data to produce a score. In that case, you can try a , such as a credit-builder loan, to bulk up your credit history.
If you want to, you can shoot for a perfect credit score. But beyond a certain point, a higher score won’t get you better terms on credit. Credit expert John Ulzheimer says a score of 760 or higher is likely to qualify you for the lowest mortgage rates, and 720 is the minimum for the best car loan rates. You can still get loans with scores lower than those, but will probably pay higher interest rates.
Ultimately, your credit score is just a tool for achieving financial goals. Think about how you want to use that tool: Do you want a rewards credit card or a balance transfer card? Are you hoping to qualify for a mortgage? Research the score requirements of the credit card issuer or mortgage lender you are considering.
If that seems impossibly far away, set an interim goal such as adding 20 or 30 points. As long as you’re moving in the right direction, you’ll feel encouraged to keep going.