Surprise! You Don’t Need a Perfect Credit Score to Get the Best Interest Rates

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Very good credit scores are good enough to qualify for the best rates. Read on to find out how to get one. [[{“value”:”

Many years ago, I was shopping at a furniture store, trying to buy a couch on credit. But a few years of poor budgeting and being late on credit card payments put my credit in rough shape.

The furniture store didn’t extend me credit to buy the couch, and I realized that day how important a good credit score can be.

But how good does your credit score need to be to get the best rates for big purchases like mortgages and car loans? While the popular FICO scoring system ranges from 300 to 850, a score of 760 or higher will usually get you the best rates.

Perfection isn’t the goal

After I was turned down for credit at the furniture store, I worked hard to build my credit score higher, making payments on time and using only a little of my available credit. The effort paid off, and I was able to raise my score over time, and it’s now 783.

For a while, I thought I needed the highest score possible to get the best interest rates, but most lenders are looking for a score in the “very good” range of 740 or higher, and 760 puts you firmly in this category.

Just 1% of borrowers with “very good” credit are likely to become seriously delinquent on an account. And late payments appear on just 22% of credit reports for people with scores of 760 or higher.

How a credit score of 760 could affect your payments

So how much can you save with a score of 760? Bank of America gives an example of two mortgage borrowers, one with a score between 620 to 639 and the other with a score between 760 to 850.

Here’s the difference in monthly payments and the total amount paid over a 30-year loan for $300,000 for two different mortgage rates.

This example shows that having a score of 760 or higher could save you $323 every month in mortgage payments and $116,354 over 30 years!

If you’re taking out a loan to buy a car, a score of 760 or higher could also save you money. Experian says if you buy a $30,000 car with a five-year loan and have very good credit, you could get a 7% interest rate, compared to someone with just a score of 660 to 689 — which might mean a rate of 9.9%.

With the 760 score, you’d save $40 per month on your payment and up to $2,418 over five years!

How to improve your credit score

It could take some time to reach a credit score of 760 or higher, but I’m proof that it’s certainly possible. Here are the best ways to improve your score:

Reduce your debt: Lowering your credit utilization will improve your credit score and show lenders that you’re responsible with the credit you have. Ideally, you should use less than 30% of your available credit limit.Pay your bills on time: Late payments are one of the worst things for your score. Make sure to pay your bills in full and on time. This accounts for 35% of your FICO® Score.Keep current accounts open, but don’t open new ones: The length of your credit history accounts for 15% of your score, which means you should leave your oldest credit card accounts open. But don’t open new ones, which can lower your score.

Once I reached a credit score I was happy with, I mostly stopped thinking about it. However, I make sure to keep my credit utilization low and always pay my bills on time so I can maintain my score.

To get started on improving your score, get your credit reports (for free) from all three consumer credit bureaus at AnnualCreditReport.com. You’ll see what lenders see when they look at your credit, and it’ll give you insight into what areas of your credit you need to improve. You can also scan for errors on your credit reports and dispute them — having errors removed can boost your credit score.

If I can improve my score, you can, too; it just takes some time and effort!

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Bank of America is an advertising partner of The Ascent, a Motley Fool company. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.

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