How to Get a Top Credit Score and Keep It!
/I read a great article this week with some really helpful information you can pass along to your clients on how they can get the best credit score possible and keep it there. This is a little longer update than usual, but the information is fantastic. Have a great week!!
There's no doubt about it ‒ when you're applying for a mortgage loan, a high credit score helps you lock in a better interest rate, which can save you thousands of dollars over the life of the loan.
But, on a scale of 300 to 850, only less than 1% of the population has an 850 credit score. While it may seem impossible to achieve a "perfect" credit score, it's good to know that you'll be rewarded with the best interest rates when your credit score is 760 or higher.
It takes consistently responsible financial behavior to maintain a top tier score of 760 - 850. Let's take a look at some of the common traits of high credit score achievers.
Conservative Spending Habits
Never max out your credit cards! People with high credit scores use only 30% or less of their available credit, and those with scores over 800 are using 10% or less. According to a recent survey by Fair Isaac Corporation (the creators of the FICO® Score), people with top level credit scores have an average of four credit cards with balances. So, using your credit cards does help you to build a solid credit history, but it's important to maintain conservative spending habits and keep your balance owed as low as possible.
Make Payments on Time
Did you know? Late payments on your credit report can cost you up to 110 points on your credit score. Ninety-six percent of the people with top credit scores have no late payments on their credit reports.
Have a Well-Established Credit History
FICO® states that the top tier credit scorers have an average credit account of 11 years old, with the oldest credit account averaging 25 years old.
This might be frustrating to hear if you're just starting to establish or re-establish credit. If you're in this position, find out if your bank offers a secured credit card.
With this type of card, you provide a security deposit, which could be a percentage of your spending limit or the actual spending limit. Over time ‒ providing you are making payments and showing responsible financial behavior ‒ the bank may upgrade you to an unsecured card. Before entering into a secured credit card agreement, make sure your monthly payments will be reported to the credit bureaus, and the card will not be flagged as "secured" on your credit reports.
Have a Limited Number of Credit Inquiries
On average, the newest credit account is 28 months old for the top credit scorers. Remember, too many credit inquiries in a short period of time can have a damaging affect on your credit score.
So, don't apply for every credit card that is offered to you in the mail or at the mall. Too many recent inquiries from applications for revolving accounts in the last 12 months represent a greater risk when it comes time to apply for your mortgage.
Make Regular Payments on Installment Debt
If you're making payments on a student loan or a car payment, make your regular payments on time.
Do not try to pay it off early! That won't increase your credit scores. However, if you make the regular payments on time, then you're proving that you have the ability to fulfill a financial commitment.
Don't Cut Up Old Credit Cards
If you have a stagnant credit card with a zero balance, make a small purchase and pay it off quickly. Or, use the old card to make automatic payments on a regular monthly expense, such as a utility bill. This doesn't change your monthly budget, it only changes who you're paying the money to. This can raise the Credit History portion of your scores, based on how long you've had the credit card!
Make Sure Your Credit Reports are Accurate
Last, but definitely not least, go through your credit reports carefully (you should have one each from Experian, Equifax and TransUnion) and look for errors.
• Make sure the items listed on your card are yours. If you find charges you didn't make, you may be a victim of identity theft, or someone else's data is being reported to the wrong file.
• Make sure "on time" payments are not listed as "late".
• Make sure any collections that you've paid off have been removed.
• Make sure all creditors you are faithfully making payments to are being recorded.
• Look for negative comments that are older than seven years. You can ask to have these removed.
• Look for bankruptcies older than 10 years, or accounts associated with the bankruptcy that are still showing up. You can ask to have these removed.