This is the holy grail of all credit scores: 850. On the widely used FICO credit score scale, about one in 200 people achieve perfection, at least as of a 2010 estimate by the. Fair Isaac Corporation, the company behind the aforementioned FICO score.
The benefits of having a perfect or even excellent credit rating (think 750 or more) are undeniable. It puts the ball completely in the corner of the consumer rather than the lender. You will often have lenders fighting for your business and in almost all cases the lenders will offer you the best interest rate, which means you will have the lowest possible mortgage and long-term loan costs of all consumers.
So what does it take to achieve this holy grail of credit scores? As one of the lucky 1 in 200 with a perfect credit score, I don’t think so. Yes, it takes dedication, but there are no secret clubs or shortcuts to achieving credit score perfection.
Here are 10 credit counseling I will share with you what should help you in your search for a credit score of 850.
1. Pay your bills on time (and don’t be afraid to ask for a waiver if you’re late)
It probably goes without saying, but the most important factor in your FICO credit score is your payment history. Although FICO keeps its precise scoring formula a closely guarded secret, MyFICO reports that approximately 35% of your score is derived from your payment history. If you have a number of late payments and / or collections, your credit score will take it by the chin.
Yet even if you have an occasional late payment, it is often worth asking your lender to forgive a late payment (assuming you’ve made your payment and are now up to date on your account).
Most people are not perfect and we miss payments from time to time. Many years ago I was late one day with a credit card payment, but I have had at least five years of consecutive on-time payments with the lender in question. I asked for late fees and adverse credit be forgiven and the obligated lender. For lenders, it is often cheaper to bend a little with clients they would like to hang on to than to spend a lot trying to acquire new ones.
2. Set up as many automatic payments as possible
One of the best ways to reduce the risk of late payments and eliminate the “forgot” excuse that proliferates throughout the industry is to set up as many automatic payments as possible for your credit accounts. Having your bills automatically deducted from your bank account on a specific date or charged to a credit card (assuming you pay them monthly) ensures you are never overdue on your bills.
I’ve also found that paying bills online through your bank can be a particularly smart way to reduce your chances of being late on your payments. Not only do you avoid the risk of your payment arriving and being processed after the due date if you send your bills in the mail, but online banking is exceptionally fast and easy to keep records.
3. Don’t carry a balance if you don’t have to.
If you can, pay off your credit cards every month. One of the biggest misconceptions is that you have to carry a balance on your credit cards to improve your credit score, which is just not true. As long as you pay your bill on time each month, even though that bill is paid in full each month, you will see a positive long term benefit in your credit score.
I have been paying my credit cards in full for 12 years which has helped lower the overall cost of the goods and services I have purchased as there is no interest payable. It also helps reduce your overall credit usage, which is roughly 30% of your FICO credit score.
4. Don’t check your credit score every month
Another fairly common misconception is that you have to stay on top of your credit score like a hawk. Your credit history is like a roadmap that lenders use to decide whether to lend you money and, if so, what interest rates you’ll qualify for. It takes a lot of data points to paint an accurate picture for lenders. This means that your credit score can take a long time to adjust upwards, especially since the length of your credit history contributes about 15% of your FICO credit score.
It took me 17 years to get a credit score of 850. While it’s certainly possible that you could do it in fewer years, monitoring your credit score every month will likely drive you crazy. Limit your credit score checks to between two and four times a year. This will give you an overview of your progress.
5. Don’t be afraid to increase your credit limit
I sometimes wonder why consumers resist when lenders offer a credit limit increase or why they are afraid to ask for a higher credit limit. If you are a compulsive spender, this fear would be justified. Either way, I would suggest cardholders embrace the idea of higher credit limits.
The idea here is simple: the higher your credit limits, the less likely you are to use more than 30% of your overall credit, which is the limit point where your credit score could be impaired. Yes, increasing your credit limit will likely require your lender to carefully review your credit report, and this may result in a temporary loss of a few points on your credit score. But in the long run, it could help lower your credit utilization rate, which will have a much more positive impact on your credit score. as long as you remain responsible for your expenses.
6. Ask your lender to lower your interest rate
While this idea might sound crazy, asking your lender for a lower interest rate tends to work more often. The point is, most cardholders don’t make this request because they are afraid to do so or believe they will be told “no”.
As noted above, lenders spend a lot more money on attracting new customers than by giving in to a few concessions from those with great credit scores. If you ask for an interest rate reduction, you might get it, which means lower costs for you and possibly the ability to pay off your debt faster if you have a balance. In the worst case scenario, you are being told ‘no’ – and there are much worse things on this planet than that.
7. Keep accounts in good standing open and use them from time to time
One of the biggest mistakes consumers make is closing good credit accounts because they believe credit card companies will view the action as “responsible.” In other words, consumers believe that by having fewer accounts, they will demonstrate to lenders that they can manage their credit responsibly.
Unfortunately, this is not the way it works. The length of time you open your credit accounts is approximately 15% of your credit score. If your accounts are in good standing, leaving them open for an extended period will improve your credit score. I suggest that you attempt to use your rarely used good-standing accounts once or twice a year to make sure they stay open and are not closed by your lender.
8. Only open accounts when it makes financial sense.
An important factor in your walk towards an 850 FICO credit score is making sure that you only open new credit accounts when it makes financial sense to do so.
In any given year, I’m offered somewhere between 50 and 60 credit cards, and I haven’t opened a new account for at least four years. Open a credit account makes sense when it comes to an exceptionally large purchase, like a house or car, or when it comes to 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.
9. Focus on your revolving debt first
If you have a balance on your credit cards, it’s important that consumers focus on paying off their revolving debt first.
Whether you realize it or not, FICO takes into account the types of debt you pay when calculating your score. These two types of debt are renewable and installment debt. Revolving debt usually has higher interest rates, and your minimum payment is based on how much you owe. Department store credit cards are a good example. Installment loans are fixed loans with a long term, such as a mortgage or a car loan. Paying off your revolving debt first often means paying less interest.
10. Check your credit report annually
Last but not least, take advantage of the fact that you can check your credit report once a year for free with each of the three credit bureaus. Far too many consumers do not check their credit reports every year, and you are more likely to realize that one or more of the three credit bureaus has an error on your report. Head over to AnnualCreditReport.com now if you haven’t done so this year and make sure your credit report is accurate.
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