What is an excellent credit score?

Chances are, you’ve heard that having a good credit score is majorly important for your financial health. Even better, having an excellent credit score can help you qualify for the best credit cards and loans that come with low interest rates and preferable terms.

To better understand what an excellent credit score is — usually 800 or higher — and why it matters, keep reading.

What is an excellent credit score?

While you don’t need an excellent credit score (also called an exceptional credit score) to qualify for decent credit products, the higher your score is, the more options you’ll have. Having a good credit score will ensure that you also can qualify for great lending products and fair rates and terms, but having a score over 800 doesn’t hurt. As an added bonus, having a score that high gives you a little wiggle room in the event your score drops.

Lending requirements — and credit score models — differ among lenders, but many rely on FICO for their credit scoring needs. The FICO scoring model considers a score of 800 or more excellent, while VantageScore, another popular model, considers anything over 781 excellent.

Why having an excellent credit score matters

Lenders use credit scores to determine how creditworthy an applicant is. The higher someone’s score, the more responsible they’ve been with credit in the past. If you have a bad credit score, lenders will worry you won’t make your debt payments on time. This is why they tend to offer higher interest rates to borrowers with bad credit.

By charging higher interest rates, lenders lower their risk. In the event the borrower does default on the loan, the lender already made some money on interest charges to help make up their loss. On the flip side, if you have a good credit score and a history of making your payments on time, the lender is likely to charge a much lower interest rate because you pose less of a default risk.

Having an excellent credit score can also make it easier to rent an apartment, find a job, access utilities and secure lower insurance rates.

FICO vs. VantageScore

The two most popular consumer credit scoring models are FICO and VantageScore. Each determines and ranks credit scores differently. Here’s how the models differ:

How to build an excellent credit score

It takes time to build an excellent credit score, even if you always pay your bills on time. Whether you’re just starting your credit journey or need to repair a damaged credit score, these steps can help you establish a good credit history.

Make on-time payments

The best way to improve your credit score is to pay your bills on time every single month. When you make payments 30 days past your due date on loans that lenders report to the credit bureaus (think credit card, mortgage, auto, student and personal loans), your credit score can fall by 100 points or more.

Decrease your credit utilization ratio

Your credit utilization ratio measures how much of your credit you’re using compared to how much is available, and you want this ratio to be as low as possible (below 30 percent is a good rule of thumb, but again, the lower the better).

To lower your credit utilization ratio, you can pay down revolving forms of debt like credit card debt so that you’re using less of your available credit. It can be helpful to keep old credit cards open that you no longer use — that way, your overall amount of credit is greater, which can make it easier to keep your credit utilization ratio low.

Become an authorized user

If you’re struggling to qualify for new credit cards on your own, you can ask to become an authorized user on an existing user’s account (such as a spouse or parent). When you do this, you’ll be issued a credit card linked to the main account holder’s account, but he or she will be responsible for the payments, so make sure you both have a plan for how you can use the card. When the account holder makes on-time payments you’ll get credit for them, which can help you improve your credit score and make it easier to qualify for your own credit cards in the future.

Bottom line

Working your way toward an excellent credit score can take years of hard work and discipline, but it is doable and certainly a worthy goal. Once you have an excellent credit score, you’ll be able to qualify for the best credit cards with the lowest interest rates and friendliest terms.