The Holy Grail of all credit scores: 850. On the widely used FICO credit score scale, approximately one in every 200 people achieves perfection.
The perks of having a perfect or even excellent credit score (think 740 or higher) are undeniable. It puts the ball completely in the corner of the consumer rather than the lender. You’ll often have lenders fighting for your business, and in nearly all instances, you’ll be offered the best interest rate by lenders, meaning you’ll have the lowest possible long-term mortgage and loan costs of any consumer.
Here are 10 credit tips I’ll share with you that should help in your pursuit of an 850 credit score:
- SET UP AS MANY AUTOMATIC PAYMENTS AS POSSIBLE.
Reduce the possibility of a late payment and eliminate the “I forgot” excuse that ensures that you’re never late on your bills.
Setup autopay so you never miss a payment, or bill pay reminders to receive notifications when your bills are due.
A history of on-time payments helps show lenders that you can manage credit responsibly. A payment that is late 30 days or more is often reported to the credit bureaus.
0 late payments for maximum credit points
2. DON’T CARRY A BALANCE IF YOU DON’T HAVE TO
If you can, pay your credit cards off each and every month. One of the greatest misconceptions is that you need to carry a balance on your credit cards to improve your credit score, which just isn’t true. As long as you’re paying your bill on time each month, even if that bill is paid off in its entirety every month, then you’re going to see a long-term positive benefit in your credit score. Now that you know you don’t have to leave a balance on your card, here’s how much you should be swiping:
3. USE LESS THAN 30% OF YOUR AVAILABLE CREDIT
If you use too much of your available credit, you may not have enough credit when you need it, but most importantly lenders will think you’re spread thin financially if you use every dime of your credit limit.
Use less than 30% of your available credit. If your credit card limit is $1,000 only use MAXIMUM $300 on that card. But keep in mind that using some available credit and paying it off immediately may be better than not using any credit at all.
Use up to 10% of credit limit for maximum credit points
4. DON’T CHECK YOUR CREDIT SCORE EACH MONTH
Another somewhat common misconception is that you need to stay on top of your credit score like a hawk. Having a few inquiries a year is normal, but people with too many inquiries within a short period could be seen as applying for multiple new credit lines, which is an indicator that someone could be financially overextended.
Your credit score can take a long time to adjust upward, limit your credit score checks to between two and four times annually.
0 credit checks within 2 years for maximum credit points
5. DON’T BE AFRAID TO INCREASE YOUR CREDIT LIMIT
If you’re a compulsive spender, fear of increasing your credit limit would be justified. In all other cases, I’d suggest cardholders embrace the idea of higher credit limits. Yes, increasing your credit limit will likely involve your lender taking a hard look at your credit report, and it may result in a temporary loss of a few points on your credit score. But over the long term it could help lower your credit utilization rate, which will have a considerably more positive impact on your credit score as long as you remain responsible with your spending.
$50,000+ credit limit for maximum credit points
6. KEEP GOOD-STANDING ACCOUNTS OPEN AND USE THEM FROM TIME TO TIME
One of the bigger errors consumers make is closing good-standing credit accounts because they believe credit card companies will view the action as “responsible.” Some believe that by having fewer accounts, they’ll be demonstrating to lenders that they can responsibly manage their credit – but that is NOT the case. Keep your oldest credit account open and in good standing.
The age of your oldest credit account shows lenders how much experience you have handling credit. So don’t close old paid off accounts, not only will it not help, but it can damage your score.
25+ years old credit account for maximum credit points
7. ONLY OPEN ACCOUNTS WHEN IT MAKES FINANCIAL SENSE
Opening a credit account makes sense when it’s an exceptionally large purchase, such as a house or car, or when it’s a large purchase that would strain your checking or savings account. In other words, avoid opening multiple new credit accounts just to save 10% on that $29 shirt you want.
Only apply for credit when you NEED it, and once you open an account, make sure to manage it by paying your bill on time and only using as much as 30%.
Open no more than 2 accounts within 2 years for maximum credit points
8. KEEP CAR / HOME INQUIRIES WITHIN A SHORT TIME PERIOD
If you’re shopping around for credit accounts like a mortgage or an auto loan, try to keep your inquiries within a short time period. The Vantage Score 3.0 model counts all inquiries that appear in your credit file within a 14 day window as a single inquiry.
Run your credit once, ask them to give you a copy of your full report to use when shopping for loans.
9. BECOME AN AUTHORIZED USER
Simply put, an authorized user is someone who is granted access to another person’s credit-card account. Becoming an authorized user on a responsible person’s credit card can be a quick path to building credit without a credit check.
If you already have great credit established, adding a trustworthy authorized user to your card can help you earn more rewards more quickly, while helping someone else build his or her credit. But as you’ll see, mutual trust is key to an authorized user relationship.
Be sure to investigate before making the decision to add or be added as an authorized user: https://wallethub.com/edu/authorized-user/24717/
10. FOCUS ON YOUR REVOLVING DEBTS FIRST
If you happen to carry a balance on your credit cards, it’s important for consumers to focus on paying off their revolving debts first.
Whether you realize it or not, FICO actually takes the types of debt you pay into account when calculating your score. These two types of debt are revolving and installment. Revolving debts typically have higher interest rates and your minimum payment is based on the amount you owe. Department store credit cards are a good example. Installment loans are fixed loans of a lengthy time period, such as a mortgage or car loan. Paying down your revolving debts first often means paying less in interest.
Hopefully these 10 tips will get you on your way to 740+. If you need unique help or have questions, feel free to schedule an appointment and we can get you on the free path to a good score. Simply fill out the form below.
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