A credit score of 700 is considered "good" by FICO, and although it's not in "very good" or "exceptional" territory, it should qualify you for the best terms on most loans. Here's how you can use your credit score to get lower interest rates and maximize the benefits of good credit.
What a FICO score of 700 can get you
Even though a 700 credit score seems pretty high based on the official FICO score range of 300 to 850, it is exactly average, according to FICO data from April 2017. To put it in perspective, roughly 43% of credit scores across the United States are lower than 700. Of course, the average fluctuates. In 2009, for example, the average credit score was lower due to the financial crisis.
Regardless, having a score of 700 or higher should set you up for some of the best interest rates and terms available on credit cards, car loans, and mortgages.
- Credit cards -- You'll qualify for most credit cards, though some of the highest-end cards may be out of reach. (A high income can qualify you for credit cards designed for people who have excellent credit, even if you have otherwise "good" credit.)
- Car loans -- You'll qualify for the best rates on car loans, as the best terms are generally available to people who have credit scores of 700 or higher. Once you've topped 700, your interest rate is more greatly affected by your income, the size of your down payment, and the car you're buying.
- Mortgages -- Underwriting is most stringent when it comes to mortgages. In general, borrowers with a score of 700 to 759, which mortgage lenders consider "prime," will have an interest rate only 0.25 percentage points higher than borrowers with a score of 760 or higher -- which lenders generally consider "super prime." (See mortgage rates in your local area at Fool.com's mortgage center.)
Planning to buy a home?
If you're looking to purchase a home, it's wise to work on maximizing your credit score before you apply for a mortgage. Here are some things to do:
- Pay down your balances -- Having a credit card balance in excess of 30% of your credit limits (more than $1,500 on a card with a $5,000 credit limit, for example) can hurt your score. Try to keep your balances as low as possible. Luckily, balances are reported at least once a month, so paying down a balance can quickly result in an improved score.
- Assess how your payments affect the maximum loan amount -- Lenders use a basic ratio to determine how much you can afford to borrow. By paying down a loan, you'll improve your "28/36 ratio," allowing you to qualify for a larger mortgage.
- Don't open any new accounts -- If you plan to get a mortgage in the next year, it'd be wise to avoid making any new applications for credit. Don't open a credit card, finance a new car, or agree to put a furniture purchase on a store card if you expect to go through the mortgage underwriting process any time soon. New accounts will temporarily depress your score and worry your lender that you may be desperate to borrow money.
Refinance old debts
If your credit score hits 700 on the way up, you may have ample opportunity to cash in by refinancing your existing debts at a lower rate. Student loans, car loans, and mortgages can all be refinanced at a lower rate if you have a recently improved credit score.
The table below shows the rates Capital One offers on car loan refinances, just to give an example.
|Credit Score||Auto Loan Refinance Rate|
|750 or higher||3.39% for 60 months|
|700 to 749||3.39% for 60 months|
|650 to 699||5.49% for 60 months|
As you can see, getting to a credit score of 700 or higher can save you a lot of money on your auto loan. Similar savings are available for people who refinance student loans and mortgage loans after increasing their credit scores. If you start shopping around to refinance a loan, it's important to follow some basic rules to avoid a negative impact to your credit score. For the purposes of calculating your credit score, all credit inquiries within a 45-day period are combined into one. Because your credit score would otherwise take a small hit with every inquiry, it's smart to get all your refinance quotes within a 45-day time frame.
Cash in with a credit card
If you don't plan to get a mortgage or refinance any existing debt, at least consider getting a rewards credit card. Thanks to robust competition for credit card customers, banks are offering friendly terms to borrowers who have credit scores over 700. Some particularly good offers can be found in cash-back rewards cards and travel credit cards.
- Travel cards -- Two of the top-ranked travel cards offer new cardholder bonuses worth more than $500 toward travel for qualified applicants. These cards can go a long way toward helping you pay for a vacation, but you'll have to meet a minimum spending requirement, which can be as high as $4,000 in 90 days (approximately $1,334 per month). The best time to sign up for one of these cards may be when you're already planning to make a major purchase that you can pay for with plastic.
- Cash-back cards -- The three cash-back cards we rank highest at Fool.com offer $500 of new cardholder bonuses with minimum spending requirements no higher than $1,000 in the first 90 days (roughly $334 of spending per month). Credit card sign-up bonuses can be one of the best ways to benefit from credit cards if you have a score above 700, since the best bonuses are reserved for people who have good credit.
- 0% intro APR -- If you plan to make a major purchase, a 0% intro APR credit card can be a smart pick. With up to 21 months of zero interest on new purchases, these cards can help you finance a large planned purchase (like a new roof on your home, for example). Similarly, people who have credit card debt should seek out a balance transfer credit card to effectively refinance their existing credit card debt at a 0% promo rate for more than one full year.
Of course, the financial benefits of top-tier credit cards only make sense for people who won't carry a balance and thus avoid paying interest on their cards. It goes without saying that even the best rewards programs can be more than offset by interest, which can add 18% or more of your balances each year. For this reason, credit cards are best used as a substitute for debit cards, used only to purchase what you can afford to pay for with cash.