We may play the date of our wedding anniversary in the lottery, remember that magnificent eighteenth birthday when we got to drive our father’s car for the first time, and long to lose that extra ten pounds, but the number that most impacts our life – both in what we decide and in what others decide about us – is our credit score.
Our credit score affects whether or not we can buy a house, the interest rate we can get on a new car loan, and sometimes even whether or not we get a job interview. A credit score is more than a memorable number or date, it is something we must actively manage to improve our quality of life.
Credit scores range from 350-850, and the higher the score the better. These numbers are guidelines, so while many folks aspire to achieve a credit score of 850, most people top out at 815 or 820. Some people who actively work to maintain a credit score over 800 call themselves the 800 Club. They get together online or in person and discuss ways to increase their score. It pays off – if you have a credit score of 800 or higher, refinancing your mortgage is a piece of the proverbial cake.
For the rest of us, a credit score of 620-650 is enough to secure a mortgage (albeit at a higher interest rate than the folks with credit scores of 750-800). A credit score under 650, though, sets the borrower up for additional scrutiny and potential problems with securing credit. (620 works for a mortgage because the mortgage is secured with the house itself; however, someone with a credit score of 620 is unlikely to get a credit card since that line of credit would be unsecured.)
If your credit score is below 620, the only credit offers you’ll receive are for secured cards. With secured cards, you put money down up front to back the line of credit. For instance, you would give the lender something like $500 to hold as collateral. $500 would then be your credit limit on a credit card that you can utilize and pay off like any other credit card. When the credit card is paid off, you would get your $500 back.
On the other end of the spectrum is American Express, one of the hardest credit cards to get these days. Most American Express cards have to be paid off each month – compared to most Visa, MasterCard, and Discover cards that have only a minimum payment due each month – so America Express has a higher standard (and a higher credit score requirement) for its card holders.
Wherever you are in the credit score spectrum, it is time to learn what your score is and why. It is time to own, and not be owned by, the most influential number of your financial life and to manage it to make it work for you.