Whether you realize it or not, your credit score can have a major financial, and even non-financial, impact on your life.
Most of us are probably familiar with the correlation between our credit score and the ability to secure a mortgage or a new credit card. It's no secret that a higher credit score can help you land a lower interest rate on a home loan or credit card, while a poor score could keep you from getting one or both. But there's much more to it than just mortgages and credit cards.
The many ways your credit report and score impact your life
For instance, prospective employers can request to see your credit report during the hiring process. Chances are late payments aren't going to sting your chances of landing a job, but repossessions and extended delinquencies could demonstrate a lack of financial responsibility. Similarly, a landlord renting an apartment, condo, or home is likely going to take a gander at your credit report. If your report is below average, you may not get the home of your dreams.
And there's more. Insurance companies use a modified credit-scoring system as one component to calculate what you pay for auto and home insurance. Studies have proven that persons with poor credit scores cost insurers more, so they usually have to pay more for coverage.
Utilities, such as water and power, can't deny coverage to anyone, regardless of their credit history. However, they can demand a considerably higher deposit before starting service if your credit report is less than stellar. If you have good or excellent credit, no deposit, or a small deposit, is all that may be required.
Even your love life could be impacted. A 2013 survey from U.S. News and World Report found that three in 10 women and two in 10 men wouldn't marry a person with a poor credit score!
Having a good or excellent credit report and score is truly that important.
Five states with the best credit scores
So, what does the average credit score look like in America? According to ValuePenguin, the average credit score hit an all-time high of 695 in 2015. As a reminder, the FICO credit score scale runs from a low of 300 to a high of 850, with a score of 700 and above viewed as "good." Since hitting a trough of 687 in 2009 and 2010, scores have been on the rise.
What's possibly even more impressive is that we're witnessing credit score trends stay good or improve for between 80% and 93% of residents in all 50 states. It's a sign of a healthy economy and a potentially more credit-savvy public.
However, a handful of states really stand out for their credit scores. Here are the five states with the highest average credit scores, along with their accompanying average score in parenthesis.
- Minnesota (707)
- North Dakota (700)
- Wisconsin (698)
- South Dakota (697)
- Massachusetts (694)
You'll note that only two states -- Minnesota and North Dakota -- really qualify as having "good" credit. The other top states are close, but still have some work to do. In particular, ValuePenguin's data shows that just 7% of North Dakota's residents, 9% of Minnesota's, and 8% of South Dakota's, have declining credit scores.
Five rapid-fire ways to boost your credit score
A good or excellent credit score can save you money and flat-out make your life considerably more pleasant. Here are a handful of ways you can achieve a considerably higher credit score.
1. Get back to basics: Probably the easiest way to boost your credit score is to reacquaint yourself with the five factors that affect your credit score. These are,
- Your payment history (35%)
- Credit utilization (30%)
- Length of credit history (15%)
- New accounts (10%)
- Mix of accounts (10%)
As you can see, simply paying your bills on time and keeping the amount of credit you use as a percentage of all credit available low (say below 20%) accounts for almost two-thirds of your score. Additionally, leaving good-standing accounts open for a long time, and resisting the urge to open a new credit account when it doesn't make financial sense, can lift your score over time.
2. Set up automatic payments: One of the easiest ways to avoid pesky late charges and a ding on your credit report is to set up as many automatic payments for your bills as possible, especially installment loans. An installment loan, such as a mortgage or auto loan payment, is a fixed amount each month over the life of the loan (assuming it's a fixed rate loan), so there are no month-to-month surprises. Setting up automatic payments also removes the dreaded "I forgot" excuse from the equation.
3. Focus on your revolving debts first: Another smart maneuver to boost your credit score is to focus your attention on paying down what you owe to revolving lines of credit, such as a bank-issued credit card or a department store card. Revolving debt minimum payments are based on the amount you've charged, thus they can vary each month. Paying down these debts can reduce what you owe in interest, since revolving account debt typically has a much higher interest rate than installment loans, which can in turn help you pay down your principal owed and lower your credit utilization.
4. Check your credit report annually: This should go without saying, but you should be checking your credit report for free at AnnualCreditReport.com each and every year. Credit reporting agencies are far from perfect, and errors can arise on one or more of the three agencies' reports. Locating and fixing an error on your credit report can provide you with an instant credit-score boost. Best of all, checking your credit report is regarded as a "soft inquiry," meaning it won't impact your credit score. You have nothing to lose by double-checking your report.
5. Ask your lender for concessions: Finally, don't be afraid to ask your lender for concessions from time to time. It's almost always costlier for lenders to market to new consumers than to keep you a happy cardholder. This means requesting a late-fee waiver if you make a late payment, but have had a good history of making your payments on time. It also means requesting a lower interest rate from your lender if you have an improving credit score and a responsible history of credit use. You'd be surprised how often lenders give in to consumer requests.
If you take these suggestions to heart, there's little reason to believe you won't see an improvement in your credit score over the long run.