Q: I’m approaching 30 and was disappointed to see my FICO score was only 720 points. I don’t frequently use credit, but I do have 10+ years of history between my student loans, car loans, and a couple credit cards. Nowadays how good (or bad) is my current score? And what’s the easiest way to improve it?
A: Is a credit score of 720 still considered good? Absolutely. But is it considered great? Close but no cigar.
Even though the economy has recovered nicely since the great recession banks are still a bit risk averse about handing out credit lines compared to before the crash. In the past few year underwriting requirements have loosened a bit with some financial products, which is certainly good news for us consumers. But truly easy credit may be gone for good. That’s partly due to the fact that banks finally embraced a new type of customer that they used to only tolerate (and often labelled as a deadbeat) – the one that pays the bill in full each month. After getting burned by people who always carried big balances and paid interest charges the banks started focusing on those who just spent a lot (thus earning lots of merchant interchange income) but paid off their cards each month since they presented little default risk.
But regardless of whether you use a card to carry balances or simply as a convenience it’s important to keep track of your credit score.
Your score – in context
Here’s what various score ranges mean (based on definitions from Experian regarding FICO scores):
720 credit score – what it means
|800+||Excellent||Consumers in this range can expect easy approval for credit products and the best terms.|
|740-799||Very good||Consumers in this range can expect to qualify for a wide range of products and are eligible to receive favorable terms.|
|670-739||Good||Consumers in this range may vary in their qualification for credit products. Those at the lower end may get denied for premium products, or may have less-favorable terms/lower credit limits. Still, getting approved for a card or loan is absolutely feasible.|
|580-669||Fair||Consumers in this range can expect higher interest rates and may not qualify for some credit products. Results will vary, based on whether the score is due to thin credit history or a troubled one (bankruptcies and late payments).|
|579 and lower||Poor||Consumers in this range will have trouble qualifying for most credit products.|
With a 720 here’s what you can typically expect.
1. Approval for the best cards is probable, but not guaranteed
If you were 20 or 30 points higher (and have reliable income and employment), you would most likely be approved for any credit card you wanted.
However, with a 720 FICO it’s a gray area in terms of a definite yes or no since different issuers have different lines of demarcation in terms of risk.
So, which would the best best cards to consider? Right now I would hold off on the high-end or “status” cards like American Express Premier Rewards Gold and Chase Sapphire Preferred. But I do think you have a good shot at these if you want to try for one:
- Gold Delta SkyMiles – This would be my top recommendation for you. Based on feedback I’ve received, it might be the easiest American Express to get approved for. Excellent rewards and benefits.
- Blue Cash Everyday – No annual fee, and good cash back on categories.
- Discover it® Cashback Match™ – It offers 5 percent cash back on category spending and 1 percent on all other purchases.
2. Don’t expect the best rates on loans
On mortgages, if you go with an FHA (a loan backed by the Federal Housing Administration) then you could have a 720 and buy a place with a 3.5% down payment and probably still get a decent rate.
But unfortunately, homes valued above a certain amount won’t be eligible for an FHA.
This is why many aspiring homeowners find themselves needing a conventional (non-FHA) mortgage. With those, you typically need a score of at least 740 to 760 to get the best interest rate.
With student and auto loans, the good news is that a credit score of 720 might get you the best rate. This is because auto loans are heavily subsidized by the manufacturers and many types of student loans are backed by the government.
3. An average score means average credit limits
Obviously this is also dependent on your income, but even if you make a lot of money, I wouldn’t expect a credit limit of more than $5,000 to $10,000 on a given card. You might get higher than, but it’s not likely with a 720 score.
From my experience, in order to get limits of $15k, $25k or higher require a stellar credit score. You need more along the lines of a 750 to 780, plus enough income, to be granted generous limits like that.
What’s the easiest way to improve your score?
First and foremost, you need make sure all your accounts are paid on time. But that’s obvious and you already knew that.
That aside, the easiest way to increase your credit score is to have more accounts.
Speaking from personal experience, I know that when I had only 2-3 cards my score was 726. Just a year or two later after opening several more accounts, I had a score in the 760’s. So, that bursts the misconception that having a number of open cards or trade lines can submerge your credit – quite the opposite if they are used responsibly.
Of course, there’s a lot more to your score than just having a bunch of cards and loans. The age of those accounts (how long you’ve had them open) is perhaps the most important factor. But there’s no way for you to control that number.
What you can control though is the number of accounts you have and how you manage them. And by opening new ones now rather than later (and managing them responsibly), in the future these accounts will be aged and therefore more helpful to your score. And with proper care you might look back at your 720 credit score from a much loftier place and smile.
Updated February 2017