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I’ve been working on my credit score for a little while. About two years ago, I was laid off for a period of time and we wound up taking on some additional debt to get by. We got a personal loan to consolidate some of our payments, but we still wound up racking up debt elsewhere. It’s a vicious cycle. That said, our credit scores are slowly creeping back up and we’ve been trying to figure out what it would take to get a credit score of 720. Is that even all that good anymore? Here’s what you need to understand.
1. Understanding a Credit Score of 720
A credit score of 720 falls into the “good” category on the FICO scale, which ranges from 300 to 850. Most lenders consider a 720 score a reliable indicator that you manage your credit well. It opens the door to favorable loan terms, including lower interest rates and higher approval chances. However, it’s not the same as having an “excellent” score, which typically starts at 800.
2. The Perks of Having a 720 Credit Score
With a 720 credit score, you’re more likely to qualify for competitive interest rates on loans and credit cards. Mortgage lenders often reserve their best rates for scores of 720 and above, potentially saving you thousands over the life of a loan. Car loan approvals are also easier to secure with lower rates compared to those with average or poor credit. Additionally, credit cards offering rewards, cash back, and low APRs are typically within reach.
3. Why a 720 Credit Score Might Not Be Enough
While a 720 credit score is solid, it might not unlock the absolute best financial products available. For instance, premium credit cards and the lowest interest rates on large loans often require a score of 750 or higher. Lenders might scrutinize other factors, such as your debt-to-income ratio, which could affect your approval chances. High balances on existing credit cards or recent hard inquiries might also limit your options.
4. How to Boost Your Credit Score Beyond 720
Improving a 720 credit score is possible by focusing on key factors like payment history and credit utilization. Paying off high balances and keeping credit usage below 30% of your limit can have a significant impact. Diversifying your credit mix by adding a small installment loan might also help. Limiting hard inquiries and avoiding new credit applications for a few months can prevent temporary score drops. Consistently paying bills on time is crucial, as payment history accounts for 35% of your FICO score.
5. Common Mistakes That Can Hurt a 720 Credit Score
Carrying high balances, even if you pay them off monthly, can inflate your credit utilization ratio. Closing old accounts may shorten your credit history, which can lower your score. Missing even one payment can cause a dip that takes months to recover from. Applying for multiple lines of credit in a short period can result in several hard inquiries, temporarily lowering your score.
6. Is It Worth Aiming for a Higher Credit Score?
Elevating your credit score from 720 to 750+ can unlock even better interest rates and financial opportunities. For significant loans like mortgages, a higher score might save you tens of thousands in interest. Credit cards with elite rewards programs often require an excellent score for approval. Additionally, a higher score can enhance your negotiating power with lenders as well as provide you with peace of mind during financial emergencies.
Is a 720 Credit Score Really That Good?
At the end of the day, a credit score of 720 is solid. You can get a loan for just about anything you’d need and you’ll also be able to get favorable terms for other financial products, such as credit cards, banking, and other opportunities. That said, it still isn’t considered “excellent.” Since the scores go to 850, you can continue to build on your credit history and improve your credit score even more, taking your financial prospects from just good to great.
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