“Nothing will work unless you do”
– Maya Angelou
How much should good credit cost us? It’s a question you can’t help but ask given the many services promising to repair broken credit or provide you with an excellent credit score. While nearly all of the credit promises come with significant fees, most never actually mention exactly how they plan to deliver these expected results. Fortunately there is some clear-cut evidence available that demonstrates how to reach a “High-Achiever” credit status for free. According to fico.com, this exclusive category is made up of individuals with FICO scores above 785, which is only 25% of the total consumers position. Below are some simple yet effective ways to emulate what 50 million individuals have already figured out about keeping your credit scores high.
#1. Don’t Miss Any Monthly Payments
Of the numerous factors that impact our FICO scores, none are more significant than payment history. In fact, this category alone makes up over one-third of your total credit score. So what this really indicates to us is that late and delinquent payments can cause severe damage to our overall credit standing. Conversely, for those few who are FICO “High Achievers”, the vast majority never miss any monthly payments at all. And only 1% of them have collection items listed on their credit report.
#2. Use Only A Small Portion Of Available Credit
The second most important factor for purposes of our FICO scores is how much debt we actually decide to use. More specifically, the amount of debt you owe, the number and types of accounts, and your remaining balances all make up a combined 30% of your total score. So as a rule of thumb it’s generally best to use as little of your available credit as possible. Of the individuals who’ve grown their FICO scores above 785, average credit used was found to be only 6% of what they have available. This is essentially what’s known as maintaining low credit utilization.
#3. Avoid Frequently Closing Out Accounts
Length of credit has been cited by myfico.com as the third largest factor in overall credit scoring. Therefore, among the things you always want to be considering are your average account-age, your oldest account-age, and the specific types of accounts you’ve closed out. Ultimately what looks best on your credit report is a long history of active accounts instead of frequently closing credit accounts. Research from myfico.com indicates that consumers with the highest credit scores tend to leave credit accounts open for over a decade on average.
#4. Avoid Frequently Opening Up New Accounts
Believe it or not, excessively opening up new credit can make you more of a risk to potential lenders. Therefore it’s particularly important to note how long it’s been since you last opened up any new credit accounts. You also want to make sure you monitor the number of new accounts in place at any given time, as well as any recent requests you’ve made for new lines of credit. The average FICO “High Achiever” only opens new credit accounts every 2 to 3 years approximately.
#5. Keep A Lower Mix Of Revolving Debts
While credit mix accounts for only 10% of our overall FICO scores, it’s still an important factor to keep visibility of. This is especially true for those who do not have extensive credit history such as millenials and recent college graduates. What lenders often prefer to see from their standpoint is a higher mix of installment debt (i.e. mortgages and fixed loans) over revolving debts like credit cards and retail accounts. This will generally help to ensure your credit score remains high and in relatively good standing.
The bottom line is when it comes to your FICO scores, no amount of money can buy good credit. Instead what the data consistently shows is that good financial behavior is what leads to an exceptionally high credit score. These habits are most often things we have full control over like paying bills on time, keeping balance low, and not applying for credit unnecessarily. And because these behaviors are no longer a mystery, you now have the power to apply them to your own advantage.
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