Get An 800+ Credit Score
What is a credit score?
Your credit score is a number, between 300-850, that lenders use to gauge how reliable you are with money.
Your score is determined by your credit history - or how you’ve behaved with money in the past.
Basically, it helps lenders decide - is this person going to pay me back? The higher your credit score, the more likely the answer is “yes”.
In this article, I’ll be discussing the FICO model of credit scoring - named for the Fair Isaac Corporation that developed it.
FICO uses 5 categories for scoring and each of them is worth a different proportion of your credit score.
FICO scoring ranges from 300-850.
Why do I need a credit score?
Realistically, nearly everyone will borrow money at some point in their life.
Whether it’s to buy a house, finance a car, get student loans or even just use a credit card - having a good credit score makes it ALL easier.
Having a high credit score looks good to lenders, which also means more favorable terms for YOU when you want to borrow money.
When you have a high credit score, you’re likely to get a more favorable interest rate, which can save you hundreds or thousands of dollars over the course of your loan.
For example:
Let’s say you are buying a home and take out a 30 year mortgage for $400,000 with a 4% fixed interest rate.
Over the course of the 30 year loan, you’ll end up paying $287,478.03 in interest.
But if you raise that interest rate just half a percent to 4.5%, you’ll pay $329,626.85 - over $42,000 more!
Even something as small as a half percentage point can make a BIG difference in what you pay!
So unless you plan to buy everything in cash for your whole life - you need a credit score, and the higher it is, the more money you’ll save.
5 Components of your credit score
1: Payment history (35%)
Your payment history is worth 35% of your credit score, making it the largest and most important component.
If you make a payment on or before your due date, you’ll ace this category.
Even if you can’t pay the full balance, at least pay the minimum on time. You’ll get full points for your payment history, which is the most important, although this will affect your credit in other ways.
2: Amounts owed, or current debts (30%)
Amounts owed - also called current debts - is worth 30% of your credit score - making it the next most important component of your credit score.
This number is affected by your credit utilization, which is the percentage of your credit that you use month-to-month.
For example, if you have a credit card with a $10,000 credit limit and you spend $5,000, you’ve used 50% of your credit.
Generally, keeping this number under 30% is considered good, and under 10% is great.
3: Length of credit history (15%)
The third component of your credit score is the length of your credit history, and unfortunately this is also the one you have the least control over.
The length of your credit history combines both your oldest account and the average age of all of your accounts.
For example, if you have:
1 credit card that is 10 years old (pretty good!)
3 credit cards opened in the past 12 months (not great)
Having a card that has been open 10 years is pretty good, but the 3 cards opened in the past year bring your average age down to 3.25 years.
An “excellent” score in this category is 20+ years, so just be patient.
However, you can absolutely get an 800 credit score without having 20 years of credit history, so don’t despair if you’re not there yet.
4: New credit (10%)
The 4th component of your credit score is what’s called New Credit. This is worth 10% of your credit score.
When you request new credit - for a new credit card, a car loan, student loans, or a mortgage - the lender does what’s called a hard inquiry.
A hard inquiry is a deep dive into your credit history to determine whether you’re a reliable person to lend money to.
These hard inquiries often cause your credit score to dip, but it usually recovers within a few months.
However, if you are constantly requesting new credit (like opening a new credit card every few months) it’s likely to hurt your credit score.
5: Types of credit, or credit mix (10%)
The final component of your credit score is types of credit - also called credit mix.
There are 2 types of credit: installment loans and revolving credit.
Installment loans are debts in which you pay the full amount every month - and they have a final due date sometime in the future when the full amount will be paid off.
Examples include: mortgages, car loans or student loans.
Revolving credit doesn’t have a final due date or set balance. Mostly, this is credit cards.
Having a mixture of these types of credit can increase your credit score. HOWEVER, you should never take on debt just to increase your credit score.
So if you have a car loan or mortgage, that’s fine, but don’t go looking for one just to boost your credit score.
How to get an 800+ credit score
Reaching an 800 credit score might feel impossible - but it’s easier than you might think. It doesn’t require a personal finance degree or a six-figure salary - just consistency in a few key areas.
1. Pay on time.
Since your payment history is the largest portion of your credit score, it also has the biggest impact on your score.
Paying your bills on time is the best way to get a great credit score.
Set your bills to auto pay on or before the due date so you know you’ll never miss a payment.
2. Keep your oldest cards open (and use them!).
The best way to increase the length of your credit history is to keep your cards open as long as possible (or indefinitely).
Even if it’s a card that you barely use, keep the account open so it stays on your credit report and let time work its magic.
Additionally, you can keep old cards active by putting a small, recurring purchase on them.
Some credit card companies will close your account if your card is inactive for more than 6 months.
But even if your company doesn’t do this, keeping a small, recurring payment will make your utilization score look great.
If you put a $15 Netflix subscription on a credit card with a $10,000 credit limit (and pay it off every month!) your credit utilization is 0.15%!
This will work miracles on your credit score!
3. Improve your utilization score
Lowering your credit utilization is a great way to increase your credit score.
The lower your utilization, the higher your credit score.
But there’s good news! You do NOT have to cut back on your spending to do this.
Just call your credit card company and ask them to raise your credit limit!
This will work wonders on your utilization score!
You can improve your credit utilization with NO change to your spending habits!
By raising your credit limit, you are lowering your utilization and getting a big boost to your credit score in the process!
Just be cautious and don’t start spending more only because you have a higher credit limit.
Final Thoughts
Having a good credit score is important for everyone. If you want to buy a house, finance a car, or take out student loans you need a good credit score.
Whether you’re working to build credit for the first time, or trying to recover from poor credit, taking actionable steps today will set you in the right direction.
Before you know it you’ll be part of the 800+ club.
Your life may not be perfect, but it is imperfectly yours. The only way to live it is YOUR way.
Katherine, founder of Imperfect Budget
Imperfect Budget is an educational platform built to help women align financial goals and free themselves from limiting money mindsets.
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