Imagine a life unburdened by high-interest rates and credit anxiety. In this life, financial stability is not just a dream but an achievable reality. Are you ready to break free from the ruthless cycle of debt and improve your credit score for a financially strong future and a higher credit limit?
Look no further! This article is your roadmap to navigating the realm of financial liberation. Time-tested strategies, invaluable advice, and inspiring success stories await, guiding you toward an impressive 700 credit score, good credit habits, and a debt-free existence. Prepare to embark on a liberating journey toward financial freedom. Fasten your seatbelts, and let’s soar together!
What is a Good Credit Score?
A good credit score is necessary if you plan on making big purchases in life or require personal loans. It is a numerical score that most lenders use to determine your creditworthiness so that banks, lenders, or credit card issuers can consider your credit risk and decide whether to loan you money. There are many different credit scoring models, but the most popularly used credit scores are FICO scores.
FICO scores lie within a credit range of 300 to 850, with 300 being the minimum credit score and 850 being the highest. These credit scores are calculated using the data in your credit reports, which includes the types of credit accounts you’ve had, new credit, your payment history, debt, and the length of your credit history.
Having no credit history or credit score is just as bad as having a bad credit score. This is because lenders cannot make a sound judgment about your credit risk and whether to give you a loan when you do not have a payment history to show.
While the perfect credit score is 850, it is quite difficult and unnecessary to achieve that score. There are no additional perks or benefits that you can get with an 850 score that you can’t get with a 760 or 780 credit score.
The average credit score in the USA is 714, as reported by Experian, a reputable reporting agency based in Ireland.
This is why 760-780 is considered a good range that will allow you to enjoy all the perks of an 800+ credit score. Credit scores in the 800s give you bragging rights but no real financial value.
According to the former financial expert of FICO, John Ulzheimer, the best interest rates for car loans are given at 720+, and for a housing mortgage loan, 760+ gets you the best rates and deals.
Therefore the minimum credit score required is 720 for a good car loan and 760 for a mortgage loan. This also indicates that having a 700 credit score or above is a good FICO score for easier loan terms and lower interest rates. For maximum benefits, you may want to achieve a FICO score of 760.
Here’s how you can achieve a 700 credit score or above.
How to Build a 700 Credit Score
The key to improving your credit and building a credit score of 700 is to make financially sound decisions like paying off your debts, paying your bills on time, optimal credit utilization, tracking your spending, and continuously monitoring your credit card balances.
Credit scores are determined based on a few factors: payment history, new credit accounts, outstanding debt, length of credit history, types of credit, and credit utilization ratio.
Payment history makes up 35% of credit scores while outstanding debt constitutes 30% of your overall credit score. This means that almost 75% of your credit score is dependent on how much debt you have accrued and what your history of repaying debt looks like.
Applying for new credit can temporarily result in lower scores but it helps to build up credit scores in the long run.
Hence, controlling and minimizing debt is crucial to having good credit scores and resultantly better financial health. Before discussing ways to minimize debt and spend within your credit limits, let’s discuss what comprises debt and how it is accumulated.
What is Debt?
Debt is any amount of money owed by one party to another. The two parties are the lender and the borrower. The borrower uses the money to make purchases that they would be otherwise unable to afford. This money has to be paid back to the lenders on set conditions unless it is forgiven.
The most common type of debt is loans. These include home mortgages, auto loans, education loans, personal loans, and credit cards. A fixed interest rate and repayment schedule are followed in such loans. The interest on a loan is compensation for the lender for taking a risk with their funds.
Everything You Need To Know About Debt – Practical Wisdom – Interesting Ideas
Credit cards work a little differently. They do not have a fixed end date. Instead, they have revolving credit. The borrower is provided a certain limit of expenditure that they cannot cross. In case of exceeding that credit limit or not paying their credit card bill on time, the borrower is charged money.
Sometimes credit cards also have annual fees in exchange for perks and benefits like travel rewards when you use your card for a purchase. These perks make credit card accounts popular for everyday purchases that can be easily paid off.
Risks of Withstanding Debt
While credit products help consumers and businesses expand and deal with emergencies, they can be quite risky if accumulated over a long period. Given the interest rate on loans, failing to pay back a loan can result in the payable amount increasing, leaving you with more negative balance than you began with.
Having a couple of credit cards maxed out can have a similar effect, leaving you with tons of debt and no way to pay them back. It also harms your credit score, making it difficult to get another loan to pay off your previous ones.
How to Get Rid of Debt and Build Your Credit History
Everyone dreams of a debt-free life where they are free to pursue their interests without the anxiety of debt holding them back. Here are some practices that you can follow to get out of debt and achieve a 700 credit score for better financial standing.
- Organize Your Debts
Before you get started on building that debt-free life, you need to get your unpaid bills and debt in order. Record all your debt in a notebook or a spreadsheet by reviewing your credit report, bank statements, and credit card report.
Make sure to include all fixed payments that you’re currently making toward a loan or credit line. Once everything is listed down and organized, you will have a clear idea of how deep you are in hot waters.
Calculate the minimum monthly payments you need to make to stay out of debt.
- Stop Borrowing
This goes without saying, but stop taking on more debt, especially through credit cards, when you are already struggling to pay off your previous credit and debt. This does not apply to debt-consolidating loans. If you need to borrow money, make sure you go for a loan with low interest.
- Calculate How Much You Can Pay Monthly
Once you have calculated your minimum monthly payments, figure out how much money you can afford to pay toward your debts each month. This amount should be greater than the minimum you calculated.
This is because paying more toward your debts will help get rid of your debt faster, even if you can only pay a couple hundred dollars over your minimum required amount. If you only pay the minimum required amount each month, your interest will keep racking up and you’ll stay in debt longer.
- Get Your Interest Rate Lowered
This might be difficult to achieve with a lower credit score, but it’s still worth a try. Ask your lender to reduce the interest rate on your high-interest loans for a short period or even permanently.
If you have a good standing with your creditor or lenders and have been making payments duly, they might consider helping you out with more favorable loan terms.
Another way to lower your interest rate is to consolidate your debt. This is done through a debt consolidation loan that combines multiple high-interest loans and credit balances into a single loan with a lower interest rate. A lower interest rate exponentially reduces the amount of debt stockpiling in your credit report.
- Snowball Method
One way of paying off your loans is the snowball/avalanche method. It requires you to pay your minimum monthly payments for all loans except for the smallest one. Pay as much as you can comfortably afford toward the smallest loan in your balances. This method will help you eliminate the smallest loan quickly, and you can move toward paying off your next smallest loan similarly.
Just by paying your bills on time, tracking your spending habits, budgeting for big purchases, and paying off your debts, you can drastically improve your financial wellness and achieve a 700 credit score or above. Remember to refinance your loans as your credit score builds up to take advantage of lower interest rates.
Having a good credit score and history will allow you to make big purchases like a house or a car easily without having to pay too much toward interest. This will allow you to save more money for your retirement or emergency funds and help you become more financially stable and secure.