Credit Score Goals: Your Guide to a Money Saving Credit Score

posted 11/14/2016 in Banking

Credit Score Goals: Your Guide to a Money Saving Credit Score

What's Your Credit Score?

If you’ve ever applied for a loan or credit card, you’ve heard of a credit score.  If you know your credit score, do you know if it’s considered good?  Do you monitor it monthly to see how it changes and what makes it change?

Just like with everything else in life that’s worth having, you are more likely to have an excellent credit score if you set a goal.  An excellent credit score assists you in getting the best rates and saving money on your mortgage and insurance, as well as getting the best offers for credit cards and loans.  A prospective employer may even check your credit to help in the hiring process.  So, we have put together a guide to help you set your credit score goal.

First, it is important to note that there are three major credit bureaus (Equifax, Experian and TransUnion), and your credit score can vary between each of them. The credit bureaus have different credit models, so when you set a credit score goal, be sure you know which credit model you are using so you are tracking the same number consistently. Typically, your credit score will be a number from 300-850 and falls on a tier between Excellent and Bad as illustrated on the pyramid at the top of the page.

What Credit Score Should I Have?

Here’s your guide to setting a credit score goal:

  • GOAL 1: Mortgage Loans = 740 FICO Credit Score

To get the best rates and lowest fees on a home loan (AKA mortgage), lenders will look for a FICO score of 740 or higher.  FICO scores are the most well-known credit score and are used by the Experian credit bureau.  With a FICO score of 740 or better, your mortgage loan rate can be as much as 1.5% less than those with lower credit scores (620 or below)1.  For each 20-point drop in your FICO score, you are also likely to pay more fees on your mortgage loan2.

We lead with this credit score goal because your mortgage loan is probably the largest debt you will ever have, so having a 740 FICO score or better will save you money over the life of your home loan.

  • GOAL 2: Car Insurance  Premiums = 750 Credit Score

In most states, including Iowa, insurance companies can use a credit-based insurance score to determine your insurance premiums. Your credit-based insurance score is not exactly the same as your regular credit score, but the credit-based insurance score is based on some of the same elements.  In fact, for car insurance premiums, your credit may be the single biggest factor to determining your premiums, surprisingly maybe even more than your driving record in some cases. 

Determining which number will result in the best insurance premiums is a little less straight-forward with the credit-based insurance score.  This is because insurers are not obligated to disclose a consumer’s score, so there’s no data to demonstrate which score results in the best rates.  However, based on the Consumer Reports Special Report titled Car Insurance Secrets from August of 2015, the difference in your car insurance premium can be as much as $526 more per year for those with good scores versus those with the best scores.  Therefore, we are estimating that you would need a credit score of 750 or better (excellent tier) to get the best insurance premiums. 

The Consumer Reports Special Report provided an average car insurance premium rate for poor, good or excellent credit for the average adult with a clean driving record. It’s eye opening and clearly illustrates the impact of a credit score on the premium paid.

Impact of Credit Score on Car Insurance Premiums
  • GOAL 3: Credit Cards = 720 Credit Score

Credit card companies are very competitive and want to win your business, so they have done a lot in recent years to develop very attractive rewards programs.  When credit cards are used wisely (used only for purchases you can afford with the balance paid off monthly), you can rack up rewards fast without paying interest or fees. 

The best credit card rewards are usually those that pay cash back or earn loyalty points for things like airline miles or travel.  To qualify for credit cards that earn the best rewards, a 720 credit score will typically do the trick.

An Excellent Credit Score

Based on data available from April of 2015, the average FICO score was 6952.  But, who wants to be average?  As you can see from this guide, you need a credit score in the excellent tier of 750 or better to qualify for the best rates and rewards.  It’s also important to know that if you’re job hunting, a prospective employer may look at your credit history when making decisions about hiring. 

If you get serious about setting a credit score goal, know that it takes time, patience and diligence to make progress. Don’t get discouraged if you don’t see fast results, but know that your hard work should pay off over time.  If you need assistance with strategies to build a better credit score, feel free to contact your local Lincoln Savings Bank branch and talk to one of our financial professionals. 

Lincoln Savings Bank, Member FDIC


Sources:

1 Steiner, Sheyna.  “How your credit score affects your mortgage rate”, Bank Rate, 15 Feb. 2016.  Retrieved from http://www.bankrate.com/finance/mortgages/how-credit-scores-impact-your-mortgage-rate-1.aspx#ixzz4MFiHToyZ on 5 Oct. 2016

2 “What is a good credit score for a mortgage?”, Bank Rate, 2 Mar. 2015. Retrieved from http://www.bankrate.com/finance/real-estate/good-credit-score-not-good-enough-anymore-1.aspx#ixzz4MFfBXRB9  on 5 Oct. 2016

3 “Guide: Credit Score Range for Experian, TransUnion, Equifax”, Credit Sesame, 2 Oct. 2016. Retrieved from https://www.creditsesame.com/blog/credit/credit-score-range-for-experian-transunion-equifax/ on 6 Oct. 2016

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