A high credit score is the key to the kingdom. It can land you greater than great interest rates on all sort of loans, fabulous credit card perks, and open the door to big-ticket purchases like cars, big-screen TVS, and more.
Unlock the seven secrets to obtaining and maintaining a high credit score so this life can be yours.
1. Understand What Goes into a Credit Score
Contrary to belief, calculating a credit score is not some mysterious calculation that the three credit bureaus hold the secret recipe to in some secret vault (This is not Coca-Cola, people.).
Also, contrary to popular belief, there are MANY different ways to calculate a credit score. The most popular credit score calculation is FICO, however. Once you know what makes up your FICO credit score, then it is pretty clear to see what you have to do to build a high credit score and what you have to do to maintain a high credit score.
So, here’s what goes into a credit score:
- 35% Payment history (Paying your bills and paying your bills on time)
- 30% Debt level (Owing a moderate or small amount that doesn’t outweigh total allowed debt)
- 15% Age of your credit (Long-standing relationships with creditors count in your favor!)
- 10% Types of credit (Variety is key)
- 10% Credit inquiries (The amount of time a new creditor pulls your credit)
2. Always Pay Your Bills on Time
The biggest chunk of your credit score calculation is that you pay your bills AND you always pay your bills on time. So, this is a simple one. Make sure that you always pay all of your bills AND that you always pay them by the due date.
Mark the due dates of your bills on your calendar. Get one of those mail holders with slots so that you can put your bills in order by their due date. Add it to the calendar on your phone and set an alert to go off. Schedule automatic payments through your bank or directly with the creditor.
Do whatever it is that you have to do to make sure that you always pay your bills by the due date. Since this is the biggest chunk of your credit score calculation, it is the one you should pay attention to the most.
3. Keep a Moderate Outstanding Debt
Just because your credit card line of credit is $20,000 does NOT mean you should run out and charge it to the max. On the contrary, my friend. The best practice for a high credit score is to keep your outstanding balances as low as possible.
In fact, this is referred to as the credit utilization ratio (the amount you have in outstanding debt compared to the line of credit you have). The goal is to keep your ratio under 10% to keep your credit score up, up, up.
If you can pay off your outstanding balances (especially on credit cards) every month, then it can put you in an even better position.
This part of your credit score indicates to creditors how well you can manage debt and spending. It helps that if you have high credit limits that your outstanding balance is low to non-existent.
4. Create Long-Lasting Relationships
Long-lasting relationships count in the credit department. It may sound counterintuitive, but this means that even if you aren’t using some of your credit cards, you should keep the account open anyway. Closing accounts with a long credit history can actually hurt your credit score.
What you may have to do is use the credit card or account every once in a while and then pay it off so that the creditor doesn’t automatically close your card or account.
5. Vary Your Credit Accounts
Just like anything, balance is good when it comes to the types of credit accounts you have. Your credit score goes high and stays high when you have a variety of credit accounts. Some credit cards, one or two car loans, a student loan, and mortgage, for example are different types of credit accounts.
Sprinkle in some department store credit cards and a gas credit card and you are a well-rounded person (in the eyes of the credit score calculators, anyway).
It’s not good practice to have too many accounts that are the same (i.e. all you have is a bunch of credit cards like MasterCard, American Express, and Visa). Like a good cake comes with a variety of ingredients, a good credit score comes with varying types of credit accounts.
6. Keep New Credit Inquiries to a Minimum
It’s okay to open new credit accounts every once in a while, but it’s not something you want to do regularly. If you have to establish new credit (such as applying for a mortgage to buy a home or for a car loan) do it in a set period (such as two weeks).
Typically, when you’re applying for the same type of loan in a set period, the credit bureaus do not count all of these as new credit inquires on your credit, so it won’t ding your credit score.
Only apply for new credit when you have to apply for new credit.
7. Pull and Scour Your Credit Reports
You are entitled to one free copy of your credit reports from each of the three credit bureaus each year. Feel entitled! Request a copy from each bureau every year.
Review your credit reports carefully for any inaccurate information or accounts that are not yours. If you see any problems, contact and dispute the issues right away with the creditor and the bureau.
It’s the best way to ensure your credit is clean and your credit score stays on the up and up.
Whether you are just starting out building your credit and your goal is to have a high credit score or you already have a high credit score and wish to maintain it, following these seven best practices to a T is the way to get and maintain a high credit score – all day long.