The wonderful news about having a 670 credit score is that you can legitimately claim you have a good credit score. But the bad news is that you only barely have a good score.
If you drop one point and slide down to 669, you go from having good credit to fair credit. Once you go below 670, you’re also teetering on the brink of subprime territory. Subprime credit comes with higher interest rates and an increased difficulty getting approved for credit cards and loans.
So, make sure your score is going in the right direction — up, instead of down. The easiest way to do that is to understand how credit scores work, so you can use that knowledge to your advantage.
FICO Score Ranges
You have a multitude of credit scores, but since most lenders request a version of the FICO score, I’m focusing on that one. But even if your lender decided to use a version of VantageScore instead of FICO, both scores consider similar factors. If you build a better FICO score, you’ll most likely be improving your VantageScore as well.
Here are the FICO score ranges:
— Exceptional: 800-850.
— Very good: 740-799.
— Good: 670-739.
— Fair: 580-669.
— Poor: 300-579.
So, how does your 670 FICO score measure up against the average FICO score in the U.S.? The average FICO score in America, as of April 2021, is an impressive 716. This is an eight-point increase over the previous year, which was 708 at the end of April 2020.
According to FICO, 12.5% of the population has a FICO score between 650 and 699, and 62.8% of people have a credit score higher than that. But there’s no reason you can’t jump your score up into the “very good” range, which begins at 740. Understanding how your credit score is calculated can help you improve it.
How Your FICO Score Is Calculated
There are five factors that make up your FICO score. Here’s each factor and the weight it’s given by the FICO algorithm:
— Payment history: 35%.
— Amounts owed: 30%.
— Length of credit history: 15%.
— New credit: 10%.
— Credit mix: 10%.
Payment History: 35%
You can make a big impact on your score just by paying all of your bills on time. This means every single bill, including your cell phone, utilities, car payment or credit card.
When a late payment hits your credit report, it can make your score drop quite a bit. The higher your score, the bigger the drop.
According to myFICO, a 30-day late payment can drop a 607 score into the 570-590 range, a decrease of 17 to 37 points. But if you have a 793 score, you can lose between 63 and 83 points off your score, dropping you into the 710-730 range.
Do whatever it takes to pay bills on time. This might mean setting up automatic payments or using email or text reminders.
Amounts Owed: 30%
This factor has the second-biggest impact on your score. Your credit utilization ratio is the amount of credit you have used compared with the amount you have available. If your ratio exceeds 30%, your score will suffer.
Example: You have a credit card with an $800 balance. Let’s say the card has a credit limit of $2,000. Your utilization ratio is 40% (800/2,000=0.40), which is way too high. In this case, your balance shouldn’t exceed $600 to maintain a 30% ratio.
But to really boost your score, here’s a tip: If you keep your balance under 10%, which would be $200 (200/2,000=0.10), you’ll maximize this part of the FICO score.
Length of Credit History: 15%
The FICO algorithm considers how long your credit accounts have been open, from the youngest to the oldest account. The score also looks at the average age of all of your credit accounts. The longer you’ve had credit — and used it successfully — the better it is for your score.
New Credit: 10%
Every time you apply for a credit card, it results in a hard inquiry. An inquiry can lop anywhere from zero to five points off of your credit score.
When you’re hanging onto a 670 score, the last thing you need is to lose five to 10 points because you decided to apply for two new credit cards. So, limit new credit applications while you’re working on improving your score.
In case you’re looking for a mortgage and want to compare offers, the FICO score allows for rate shopping. This means you can shop around, but do it within a 45-day window. This will make it count as one inquiry instead of several.
But note that some scores limit rate shopping to a 14-day window. So, it’s better to do your comparison shopping in as short an amount of time as possible.
Credit Mix: 10%
I know it seems like 10% is small enough to ignore, but every point counts.
Here’s how credit mix helps your score: If your report shows that you’ve been able to responsibly use different types of credit over time, it makes you look very creditworthy.
There are revolving accounts and installment accounts. A revolving account offers a credit limit or line of credit. The borrower decides how much credit to use and pays it back by the due date or over time with interest. Examples of revolving accounts include credit cards and home equity lines of credit, or HELOCs.
[Read: Best Home Equity Loans.]
Installment loans have a fixed interest rate and the monthly payment is the same every month. Examples include mortgages and student loans.
How to Improve a 670 Credit Score
There isn’t a quick fix to make your score jump 100 points in a week. But if you follow these tips and have patience, you’ll start seeing your score increase.
— Pay your bills on time: You now know how important payment history is for your credit score. Know when bills are due, and make sure they get paid on time.
— Don’t close credit card accounts: If you close a credit card account, you’ll lose the available credit. This can make your credit utilization ratio increase. You also risk shortening the average age of all your credit accounts. Unless there’s a pressing reason to close the account, keep it open and use the card once a month to keep the account active.
— Don’t apply for new credit: Avoid having your score go down due to inquiries. If you legitimately need a new card, that’s fine. The additional available credit should offset the ding to your score. But spread out applications so your score goes up, not down.
— Don’t carry a balance: Set up a budget, and track your expenses. If you don’t know how much you put on your credit card, you’re likely to spend more than you can pay off each month. Credit cards have compound interest on balances. This means debt grows quickly and the high balances will drag down your score.
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