What Is a Good Credit Score?

Do you think the average person appreciates the importance of having a good credit score?

I do think, that after the shock and unpleasant surprises of the financial crisis and its aftermath, that more individuals are aware of the importance of maintaining a good credit score. A simple gauge of this higher level of interest and awareness can be intuited simply by noting how many commercials and advertisements focus on maintaining a good credit score as a critical element of building a strong financial life.

What is your best tip for building a good credit score?

The top tips that I always recommended for people looking to improve their credit score is to lay out a plan. Whether you want to pay down your student loans first, cut your credit card debt, or pay off your car before anything else is less important than laying out a plan to get yourself started. Putting together a plan, and writing it down (either by hand or electronically) has been shown in numerous studies to increase the likelihood of it being accomplished.

What is the biggest mistake people make in their quest for a good credit score?

The biggest mistake people make in trying to improve their credit score is that they treat it like a sprint instead of a marathon. There simply is no magic plan to pay down your debt and improve your credit score overnight. Getting your credit into shape and keeping in that way is like training for a marathon -- you have to work a little bit every day to get where you want to be.

Is building good credit easier now than in the past?

Building a good credit score, and keeping it at the level that you want, is never an "easy" task, but I do think consumers today have incredible amounts of information at their fingertips. Building on this, another important suggestion I always recommend is that consumers seeking to improve their credit scores is to make sure to take advantage of the information and tools out there. The best part is that many of these resources are free!

Do you think the average person appreciates the importance of having a good credit score?

I think they do when they go to borrow money or buy insurance or engage in any other activity where the cost of what you’re buying is impacted by the score. My sense is that more people are worrying and watching their scores today -- read, Millennials -- than say, 20 years ago. But I also have a sense that the same group is somewhat resigned to their score being negatively impacted by their higher education debt burden, which is a necessary means to an end (a college education) and something they can’t really do anything about.

I think my mother’s generation (the one before the baby boomers) prides itself on having good credit but are extremely reluctant to use it -- I think my mom could buy a house with the credit card capacity that she is offered each year. On the other hand, I am a boomer, and my generation (the largest before the millennials) really achieved the full American dream but we bought a lot of it on credit. Good scores lead to lots of credit offers, but using that credit unwisely, in turn lowers the score.

What is your best tip for building a good credit score?

As I said above -- using credit unwisely lowers your score, ergo, using it wisely builds it. It’s okay to have credit capacity -- I think the secret is to use it when it’s needed but pay it off as quickly as you can. Try hard to not carry a balance (except for a mortgage or a car loan) for more than 3 months. If you can’t do that, then perhaps you should save more money to be used in addition to the credit.

Additionally, lenders look at how much unused capacity you have -- how much would you owe relative to your income if you accessed all of your credit capacity. There are lots of offers for 0% interest cards -- “free money” -- these are very tempting. But even a credit card that carries a 0% rate counts as capacity, so keep your total credit capacity under control.

What is the biggest mistake people make in their quest for a good credit score?

Oddly, I think it’s not using credit at all. If you don’t use credit (albeit wisely) at all, you have no history/no record of your borrowing/repayment patterns, etc. Disregarding 0% rate credit with respect to total credit used (or capacity).

Is building good credit easier now than in the past?

There are lots of credit resources out there -- credit cards, lines of credit, payday loans, etc. But just because you can get credit, doesn’t mean you have a good credit score. In fact, people who have bad scores still are able to borrow money; they just have to pay a lot for it. On the other hand, there is lots of wisdom out there as well -- people have access to a plethora of information, guidance, calculators, etc. that can aid them in making the best choices with regards to their “credit” lives. So, building good credit should be easy; plenty of guidance available (online services, places like wallethub.com), but people have to ask the right questions and find out what they don’t know.

Do you think the average person appreciates the importance of having a good credit score?

Most people don’t think about their credit score until they need to apply for a car loan, mortgage, or other credit. But credit scores are used for many other decisions -- employers may use it for hiring decisions, businesses may not extend their services to a potential customer with a low credit score, because of the greater risk in collecting what the customer owes. In today’s society, we are becoming increasingly dependent on credit for our day-to-day living. For example, many bridges and tunnels across the U.S. are no longer accepting cash as a means of payment. The alternatives are to pay in advance, receive a bill by mail, or establish an account that is replenished by automatic charges to your credit card.

What is your best tip for building a good credit score?

When looking to build a good credit score, stability in where you live and where you work will enhance your credit score and indicate less risk from a lender’s perspective. Also, opening checking and savings accounts and handling them in a responsible manner (i.e., no overdrafts) show financial stability and trustworthiness. Start by applying for a credit card, use the credit responsibly (don’t charge more than you can afford to repay), and, ideally, pay off the balance by the due date on the monthly bill. This allows you to use the lender’s money without accruing any interest expense.

What is the biggest mistake people make in their quest for a good credit score?

Many people get carried away with their new source of funds, and charge more on their credit card than they can afford to repay. Consequently, the interest costs they accrue significantly increase what they are required to pay back. For some, the debt they accumulate may be so onerous that they are unable to dig themselves out of this hole.

Is building good credit easier now than in the past?

Although there may be more opportunities today to build credit than in the past, the necessary elements to establish good credit are essentially the same -- demonstrate financial responsibility by not borrowing more than you can afford, and repay your debts when they are due.

Do you think the average person appreciates the importance of having a good credit score?

I do think that the average person appreciates the importance of having a good credit score. A lot of clients I work with express one of their financial goals as being an increased credit score. Consumers know that to get the best rates on financial products, they need to have a good credit score. In recent years there has been a big push to know what your credit score is. There are numerous services that will provide a person with their FICO or other type of credit score. I think this shows that the market is responding to consumers wanting to be informed about their financial decision.

What is your best tip for building a good credit score?

I have two tips to help build a good credit score. Number one; always pay your bills on time. Credit bureaus start considering a payment late when it is 30 days past due. This is the largest determinant in credit score calculations. The other is to keep balances on revolving accounts relatively low to the limit. You don’t want to have accounts maxed out. Stay below 30% of available credit on accounts. This means that if you have a credit card account with $1,000 limit, keep your balance below $300. It is best to pay off balances every month, but not everyone is able to do that.

What is the biggest mistake people make in their quest for a good credit score?

I think the biggest mistake people make is believing that if they have a bad credit score, they can never come back from it. They assume that it will take too long and too much work to increase their credit score. The truth is that while it may take time, bad credit can be turned around with a little focus and determination.

Is building good credit easier now than in the past?

I don’t think it is easier or harder to build good credit than in the past. But, I do think there is much more reliable information available to consumers, to help them understand how to increase their credit score.

Do you think the average person appreciates the importance of having a good credit score?

Over the last three decades, people have become increasingly dependent on credit in their investments, purchases, and day-to-day activities. The general impression people have is that having a good credit score is important but the specific details or the reasons are not always clear for everyone. The advantages of lower costs of borrowing for someone with a good credit score are not always immediately recognized by everyone. As a consequence, even though the desire is there, the specific action steps are not taken towards having a good credit score.

What is your best tip for building a good credit score?

The best tip for building a good credit score is to eliminate credit card balances and to pay the bills on time. Even though this may sound like a two-part recommendation, both pieces of advice are tied together. Reducing and eliminating credit card balances just makes sense, because the individual saves himself/herself from paying high interests. Furthermore, the financial reliability of the person is enhanced. Paying the bills on time eliminates any increases in the credit card balances and further improves the financial strength and reliability of the individual. Better credit scores naturally follow this strategy.

What is the biggest mistake people make in their quest for a good credit score?

There are several important mistakes people make in their quest for a good credit score. Applying to get too many credit cards, checking the credit score too frequently are common mistakes which actually hurt the credit score. Forgetting to make the final payments in purchase contracts, however small the amount may be, is a common oversight which also hurts the credit score. But perhaps the biggest mistakes are not using credit cards at all and not keeping a credit card for a long period of time. In order for the credit history to develop over time, credit cards should be kept for a long period of time and they should be used during that time.

Is building good credit easier now than in the past?

Credit use has increased significantly over the last two decades. It is relatively easier to get a credit card. Utilizing credit cards and other credit instruments has become the standard in this FinTech age through numerous phone apps and online web accounts. The ease of monitoring one’s credit and checking accounts online helps with the use of credit instruments as well.

Do you think the average person appreciates the importance of having a good credit score?

No. Maybe 25 percent of people understand that it’s important. However, banks are getting better at showing what the credit card score is.

What is your best tip for building a good credit score?

My best tip is to pay your bills in full and on time. Also, don’t have too many credit cards or charge accounts, even if you think you are getting a short-term reward -- having too many cards makes you look suspect to the credit card rating agencies.

What is the biggest mistake people make in their quest for a good credit score?

Taking out a lot of credit opportunities because they think they are establishing credit card worthiness. You really are not -- better to just pay what credit cards you have and on time.

Is building good credit easier now than in the past?

I think the ability for organizations to aggregate tons of data on individuals has made it more challenging to be creditworthy today than before. You have to be careful where you ask for credit and who has your personal data.

Do you think the average person appreciates the importance of having a good credit score?

Eventually, we all do -- but too often, this lesson in financial literacy happens too late. Credit scores are the currency that makes and breaks peoples' futures, and a credit score can either be the wind at your back (if it's good) or an albatross around your neck (if it's terrible) for years. As an industry, Finance needs to communicate this to everyone -- preferably, long before the first signature on a student loan is signed.

What is your best tip for building a good credit score?

Be smart, do your research, and don't commit to anything you don't need. Having a good credit score is like having a good shield -- no matter what life throws at you, you're prepared for it.

• Start with getting a good secured credit card -- you won't have a big credit line, and the interest rate might not be as competitive as the ones given to high-credit score consumers. Start using it for regular, repeated expenses you're already paying through a debit card or cash: food and gas, for instance. Before the due date, pay it off consistently, every month. Build good credit habits.
• Like above, but pay your bills on time. This goes for the little bills (like utilities), as well as the big ones -- like student loans. Paying these on time will help you build your score each month -- sign up for an automatic draft from your checking account so you never forget.
• Keep expenses low and manageable. Often, the small things -- buying groceries, eating out, that expensive cable package -- add up over the course of the month and make it tough to save money. Look at anything and everything -- no one should live like a pauper, but being smart with your money means looking at all the options on the table. What do you need to keep you happy and motivated?
• Don't fear a manageable debt load. Paying off a credit card, car loan, and student loans each month will build your credit fast -- but remember to keep your debt-to-income ratio low.

What is the biggest mistake people make in their quest for a good credit score?

First, people avoid credit cards. Credit cards always get a bad rap -- but it's a stellar way to build credit if you can pay it off each month. Many people feel, falsely, that they need to have to carry over a balance each month or utilize a large portion of their available credit to build their score. Use the credit card, but pay it off each month -- then you don't risk exposing yourself to high interest fees.

Another big mistake is that people forget to check their report -- a number of services offer free credit checks, which not only saves you from the embarrassment of a “negative surprise” on your next journey to a car dealership, but also allows you to check for any mistakes. Everyone should check their report at least once a year, but for those building credit, more frequent checks are a good way of monitoring your progress.

Is building good credit easier now than in the past?

For the conscientious consumer, credit building has never been easier. We can now search through, compare, and apply to a large array of consumer credit products. Ten years ago, it was demonstrably harder to compare credit card offers, and now, online services (such as WalletHub) allow consumers a breadth of choice. Choice means competition, and competition means better products for consumers. The tools we have available to us -- from credit scores, to financial products, to financial advice -- has never been bigger.

That hasn't stopped many credit products from taking advantage of consumers who might be vulnerable or still building credit -- financial literacy becomes key. The role of finance, now more than ever, is to educate and help provide transparency for consumers.

Do you think the average person appreciates the importance of having a good credit score?

No, the average person does not appreciate the importance of having a good credit score. The main reason they do not appreciate it is that they do not understand their credit score. I teach students about a good credit score in my courses, and they are all amazed. No one ever tells anyone about it -- or in the right way. A silly commercial about checking a credit score does not teach a person the value of a credit score or what it means.

I teach my students that building good credit not only opens doors, but also reduces their expenses -- lower interest rates on loans. It is the context in which a concept is explained that helps one to appreciate its meaning. Telling someone “above 700 is good” means nothing unless the person understands what a “good” score can help them achieve in their daily life -- whether it’s obtaining an additional loan, an option to purchase a larger home, the ability to lower their cost of borrowing money, etc.

What is your best tip for building a good credit score?

My biggest tip for building a good credit score is to pay attention to your bills and pay them on time. If you are going to be late or unable to make a payment -- pick up the phone. So many companies are willing to work out payments with you before you skip a payment. Many times, companies will help you work out a payment schedule that will not harm your credit score. People’s inability to ask for help with their bills results in poor credit, when it is not always the correct result. The ability to pay your bills on time makes up the largest part of your credit score, approximately 35 percent, and it should be the main focus in starting to build good credit.

What is the biggest mistake people make in their quest for a good credit score?

The biggest mistake that I have seen over the years in people trying to have a good credit score is not having a credit card. Time and time again, I have found the “perfect credit” thinkers -- the ones that are proud to have never owned a credit card, are proud to have always paid in cash. They are the ones that have the largest credit issue -- there is no history. If a person has no financial (paper) history of borrowing money and paying that money back, then who/what company will be willing to lend them money, and at what interest rate?

I find that people cross my path thinking they did everything correctly, and then are astounded to hear that if they want a mortgage, they are going to have a higher interest rate than their family member who has some financial troubles -- troubles, but a clear history. The way to earn a good credit score is to build good credit. Obtain credit -- loans, credit cards, and pay the bills. Show your payment history; show your ability to have a credit card and not max it out; show your ability to pay off debts; show your ability to be trusted by other companies. People that do not borrow money do not have credit. Therefore, their credit score is “N/A.” “Not Applicable” is not something a lender cares to see.

Is building good credit easier now than in the past?

Potentially. These days, information is readily available to assist you in building better scores. There are websites that give credit building tips, there are credit companies that do nothing but report your credit score (which you can access for free -- a free trial -- and assist in providing tips to improve your score), and many companies are willing to help you if you are willing to talk to them (i.e., lenders will work out repayment deals), etc.

Do you think the average person appreciates the importance of having a good credit score?

I think many people do -- anyone who has tried to buy or rent a house or buy a car, especially, knows how important this is. I think one problem is that many people don’t understand how important a credit score can be until this time. When we are younger, the importance of a good credit score isn’t something that is necessarily emphasized.

What is your best tip for building a good credit score?

When you have a credit card or any type of account in your name (electric bill, cable bill, etc.), pay off the full amount of the bill every month and on time. Be careful about what you sign up for, and don’t overextend yourself. Especially when it comes to credit cards, don’t put things on them that you don’t think you’ll have the bandwidth to pay off immediately.

Do you think the average person appreciates the importance of having a good credit score?

I think that the average person may know that it is important to have good credit, but they do not know how to get and maintain a good credit score.

What is your best tip for building a good credit score?

You don’t need to have a lot of credit cards to maintain good credit. You only need to open a few credit cards, pay them all on time, and don’t close them.

What is the biggest mistake people make in their quest for a good credit score?

They don’t realize how important it is to pay their credit cards on time, and to pay the complete balance owed on their cards in order to achieve a good credit score.

Is building good credit easier now than in the past?

I don’t think that building a good credit score is any easier now than it was in the past. There are so many options now to get a credit line, and they are usually easy to get. The hard part is to maintain the discipline needed to make payments towards the amounts they borrow.

Do you think the average person appreciates the importance of having a good credit score?

Yes, in my experience, most people understand the importance of having a good credit score. They know their scores affect the interest rates they pay and their access to loans. Financial columnists, consumer protection organizations, and even credit card issuers have drilled this information into consumers for decades. I don't think lack of understanding the importance is a significant problem. Instead, the problem is animal spirits, the lack of discipline when it comes to debt use. We are overly optimistic about our ability to pay off debt, especially credit card balances, and don't pay enough attention to what might happen when the ups and downs in life are mostly down.

What is your best tip for building a good credit score?

Here are my tips:

• Perhaps the most important tip for consumers is to never be late with their monthly debt payments. Not only will there be late fees, but being late can really lower debtors' credit scores. A second tip is make sure credit card balances do not exceed around 30 percent of the cards’ credit limits. Higher percentages usually indicate trouble, and credit scores fall significantly.
• And here's a good general rule: if you consistently carry large credit card balances from month to month, you haven't earned the right to use them. You aren't disciplined enough. The goal should be to pay them off, paying off the card with the lowest balance first, then the second lowest next, and so on. The sense of achievement one gets from paying off a card provides the incentive to keep at it with the other cards.

What is the biggest mistake people make in their quest for a good credit score?

Closing credit cards without understanding the impact on credit scores. In general, the longer someone has a line of credit, such as a credit card, the better the credit score. Closing an older card just because it is no longer needed is usually a mistake, especially if it will be replaced with a new card. The average age of credit cards a person has will fall, and that leads to a lowered score. Even worse, a closed unused credit card will reduce the total debt limit, thereby raising the debt-to-limit ratio, and that can lower credit scores.

Is building good credit easier now than in the past?

It's easier for several reasons. First, the economy is stronger than it has been in over a decade. At least in theory, it's easier to find jobs, stay employed, and avoid debt payment problems than it has been for several years. Thus, avoiding the misuse of debt is easier.

Second, the Federal Reserve reports that household debt as a percentage of disposable income peaked at the end of 2007 at just over 13 percent, and now is only a little higher than 10 percent. So overall, consumers have less debt compared with disposable income, and on average, should have higher average credit scores.

Third, there is a ton of information easily available on the Internet and from other sources to help people understand the factors affecting credit scores, and what they can do to improve their credit scores.

Here's a point about credit scores most people don't understand. The average person has many credit scores, and they will all be different from each other, and often, significantly different. Each bank calculates its own credit scores for each type of credit, and usually uses different formulas for doing so. For instance, an individual applying for a mortgage will have a credit score formula the bank uses just for mortgages. But the same bank will have a different formula for home equity lines of credit, another for credit cards, another for auto loans, and so on. In my example, the borrower will have several different credit scores from the same bank. If an individual also has a second bank, there will be even more credit scores. It would not be unusual for a person to have 10-20 or more different credit scores.

Do you think the average person appreciates the importance of having a good credit score?

Most people understand they need a good credit score to obtain the best rates on a mortgage or a car loan, but they don’t always realize how the score can be used in determining your character by a potential employer or landlord. The score is like a grade in school and it tells the observer of the score if you are responsible with your money and if you are trustworthy when you borrow. But even if someone knows they need a good credit score on an intellectual level, many Americans behave irresponsibly when it comes to debt and consumption.

What is your best tip for building a good credit score?

Review your credit report on a regular basis to look for errors and if you find a questionable item, dispute it immediately by contacting the credit bureau and the company that furnished the information to the bureau. The Fair Credit Reporting Act provides you the right to receive a copy of your credit report, and the credit bureaus are legally obligated to investigate any error you dispute. You also have a right to add an explanation to your credit report if your dispute is not resolved to your satisfaction.

What is the biggest mistake people make in their quest for a good credit score?

Not communicating with creditors when there is a problem. Most creditors are happy to help with hardships and difficulties when you demonstrate your intention to pay your debt. This is particularly true if you have been consistent in the past. Depending upon the situation, they may agree to remove the negative report or even forgive some of the balance.

Is building good credit easier now than in the past?

It is easier to get credit. Compared to the credit tightening following the recession, it is getting easier to get approved for a credit card, a mortgage or even a car loan. In contrast to the past, more people have car loans than home loans, credit card ownership is back to pre-recession levels. But that is actually a different question. Building good credit means using credit responsibly so that it doesn’t create a problem for you and your family when the business cycle turns. While consumers are back borrowing record levels of debt, this has not created a crisis since employment is at record highs and the economy is expanding. The record debt will become a problem when the business cycle turns. We should all be concerned, but to paraphrase William McChesney Martin, Chairman of the Federal Reserve from 1951-1970, it is difficult to take away the punch bowl just when the party is getting good.

Do you think the average person appreciates the importance of having a good credit score?

Depends on your age and life experience. With age and life experience, we learn the importance of having a good credit score. Just try buying your first home or car without a good credit score. You will find yourself in the middle of a wonderful experiential learning opportunity. So, context matters.

What is your best tip for building a good credit score?

Start small, say one credit card. Use it in a limited way. Always pay off the entire balance when due. Start young, say in early college. Then, expand as needed. Perhaps your first car? Something low-cost but that you can make payments on. Yes, finance it on purpose so that you can build credit.

What is the biggest mistake people make in their quest for a good credit score?

Impatience. I believe it is the slow turtle, rather than the rabbit which wins the race. Never borrow more than you can comfortably afford to pay back. No matter what the context is, never borrow more than you can comfortably afford to pay back.

Is building good credit easier now than in the past?

Yes, I believe it is. You can get started earlier in life because of the ease of obtaining credit. A first credit card is a no-brainer, easy to obtain. But building good credit means having the discipline to pay it back, on time, without penalties and/or interest. Caveat emptor captures our credit climate well. Yes, be a borrower, but as a borrower, beware.

Do you think the average person appreciates the importance of having a good credit score?

Unfortunately, most people don’t appreciate the importance of having a good credit score until they need to borrow for a purchase, at which time it’s too late to influence your score at least for that particular purchase.

What is your best tip for building a good credit score?

I recommend having just one or two credit cards and pay each one off every month, which not only will help to improve your credit score but is also sound financial advice. If you happen to fall behind in making payments, you should work proactively with the lender to work out an appropriate payment plan with them.

What is the biggest mistake people make in their quest for a good credit score?

I think a lot of people believe that taking on more debt and credit cards will help to improve their scores by proving that they can make the payments, when in reality, this pattern of behavior can negatively impact your credit score.

Is building good credit easier now than in the past?

I think it’s far more difficult, primarily because of the level of student debt that individuals are graduating with, and attempting to stay current on those payments. I also think many people fall into the trap of getting numerous credit cards because they are so easy to obtain. Just because you are issued a credit card doesn’t necessarily mean you have the financial wherewithal to charge the maximum to the card and attempt to get by. Credit cards can almost become like monopoly money to some people because they get the false sense that it doesn’t have to be repaid for whatever reason.

Do you think the average person appreciates the importance of having a good credit score?

I do not think they understand the importance until they are faced with a financial decision that is influenced by their credit score (e.g., applying for a mortgage) and discover that they will have to pay a higher rate. I think very few understand how much their credit score can impact their auto and homeowners insurance premiums.

What is your best tip for building a good credit score?

Pay all of your bills on time. People who get in credit trouble are also more likely to be living beyond their means, so setting up a budget and sticking to it is essential. Obviously, it is better to pay off your balance every month so that you do not incur finance charges.

What is the biggest mistake people make in their quest for a good credit score?

For most, I expect it is that they do not stick to their plan. I also think that many people do not understand that they can have a good credit score without having a lot of debt. Borrowing money and paying it off is a positive factor in the score.

Is building good credit easier now than in the past?

There are some things that make it easier than in the past -- particularly the opportunity to set up bills on autopay. This can significantly reduce the chances that you will pay a few days late.

On the other side, there are so many more pressures to overspend and to get into debt than in the past. Online shopping has contributed significantly to excessive spending.