The Big Surprise Awaiting Those Who Think Their Credit Is 'Just Fine'

Many people don't pay much attention to their credit score until they need to borrow money, whether in the form of a loan or a credit card. But your credit score is something you should aim to keep tabs on at all times, since you never know when a need to borrow might arise.

FICO is the most commonly used credit scoring model in the U.S., and a FICO® Score of 670 to 739 is considered good. By contrast, a score of 580 to 669 is classified as only fair, while a score that's less than 580 is considered poor.

Clearly, you'll be in a much better position to borrow money with a credit score of, say, 700 than 600 or 500. In fact, if your score is between 670 and 739, you may decide you're happy with it, since it is considered good. But settling for a credit score that's "just fine" like that might cost you when the time comes to borrow.

It pays to boost your credit score

You might manage to qualify for a loan with a just fine credit score of 670 to 739. But it might cost you in the form of a higher interest rate.

Let's say you're looking for a $300,000 mortgage loan. With a credit score of 800, which is exceptional, you might snag an interest rate of 7.020%, says myFICO.com, resulting in a $2,000 monthly payment. But let's say your score is "just fine" at 700. That score might give you an interest rate of 7.242%, resulting in a monthly payment of $2,045.

So right there, your okay-but-not-great credit score is costing you an extra $540 a year. Wouldn't you rather save that money or have the option to spend it on something fun?

That's why it pays to boost your credit score. FICO says a score of 740 to 799 is very good. But a score of 800 or higher is exceptional. If you can get your score up to that level, you might really save big the next time you have to borrow.

How to boost your credit score

Boosting your credit score can take time. That said, if you're starting off with a score that's fine, and not poor, then you may find that you're able to raise it relatively quickly.

The one thing you really want to focus on when trying to raise your credit score is your payment history. Being timely with bills could help that number increase.

However, if you're eager to boost your credit score really quickly, paying down a big chunk of outstanding credit card debt could get you to that goal. That's not an easy thing to do, but if you happen to come into some extra money, using it to whittle down an existing credit card balance could give your score a nice lift in fairly short order.

Another important thing to do for better credit is to monitor your credit report several times a year. Spotting and correcting errors could result in a notable bump in your score.

You may be satisfied with a credit score that's perfectly fine but not particularly outstanding. But you should know that the higher your credit score, the more favorable an interest rate you're likely to snag on a credit card or loan. That could result in a lot of savings. So for that reason alone, it's worth making the effort to bump your credit score up.