Most creditors use the (Fair Isaac Corporation) FICO credit scoring formula to determine a borrower’s creditworthiness. The FICO score ranges from 300 to 900. While achieving the highest credit score of 900 may seem elusive, reaching at least 800 is manageable.
The FICO score is based on various factors such as types of credit, payment history, credit utilization, and the number of times you apply for new credit, among others. The three major credit bureaus in the U.S., including TransUnion, Experian, and Equifax, provide all these details to calculate the score.
Getting a near-perfect or excellent credit score may be extremely challenging. A score of 800 and above is considered exceptional, and it provides you with much more than bragging rights.
But how can you get into the elite ranks of 800+ credit score? Here are some of the best credit habits that will help you get into this elite club:
Timely Payment of Bills
Paying all your bills on time is ideally one of the topmost factors that can help you improve your credit score and get you closer to an 800 credit score. While defaulting on your bills hurts your credit score, late payments of bills equally cause significant damage to your credit. If you have one bill payment late for more than 30 days, credit card issuers report it as delinquent to the bureaus which could lower your score.
So, if you want a high credit score, avoid late utility bill payments, including that $10 magazine subscription that you may consider too small. However small a bill is, it does affect your overall credit report if left unpaid.
Up to 35% of a credit score is derived from payment history. Therefore, if you pay your bills on time, it improves your credit score and creditworthiness.
Don’t Hit Your Credit Card Limit
Hitting your credit limit can also hurt your credit. Therefore, avoid using your credit card up to its full limit if you want to get into the over 800 credit score club. In fact, use a third or less of your credit limit if you want to be on the safe side.
When your credit utilization is as low as possible, it means you’re paying off your balances regularly. According to FICO, most people with a credit score of 800 and above have a credit utilization ratio of around 7%.
That means anyone who has a $10,000 credit limit cannot carry a balance above $700. That doesn’t mean they cannot put over $700 on their credit cards, and it means that they must pay off any excess balance as soon as possible within the same billing cycle, preferably.
Cancel Excess Credit Cards
If you have multiple cards, you may consider canceling a card or two with the least amount of time open. This can help increase the average age of credit and thus improve the credit score. However, consider how every credit card canceled will impact the credit utilization ratio, as closing some cards could inadvertently increase the ratio.
Monitor Your Credit Score Regularly
It’s a good idea to regularly check your credit score as it provides you with an up-to-date score analysis and information on what might have changed and why. This can help you remain alert and change any financial habit that is likely to drop your score and uphold the ones that improve it.
Review Your Credit Reports
Regularly checking your credit reports in all three different credit reference bureaus (Experian, Equifax, and Transunion) is vital. Studies show that most Americans’ credit reports have errors that could inadvertently hurt their scores.
Therefore, it is always good to keep checking the accuracy of your credit report to ensure all the information is right. Everyone is entitled to at least one free credit report per year. Be sure to get yours to confirm that all the entries are correct.
If you find inaccurate or negative entries on your credit report, you may choose to wait for the credit reporting time to pass, usually seven months, or dispute the negative entries. Disputing information on your credit report is a daunting task.
To dispute the information, you may contact the information furnisher who may help delete the wrong entry on your report with pay or a goodwill offer. Send them a dispute letter and attach a copy to the credit reporting company. The company has an obligation to investigate the dispute and correct the confirmed mistakes for free.
Maintain Good Credit Habits and be Patient
When you have done everything right, but still your score is not good enough, you may have to exercise patience as 15% of the credit score comes from your length of credit history. That means that even if you practice good credit habits since you began borrowing, getting an exceptional credit score might still take a while.
Also, you may need to have a credit mix under your name, including a car loan, personal loan, mortgage, or student loan. While this isn’t a requirement to raise your credit score to 800 plus, having just a single line of credit on your file might lower your rate of getting into the elite ranks.
Only Spend What You Can Afford
Using credit to afford a living beyond your means could be disastrous and is one way to ensure you never get into the 800+ elite rank. If you keep borrowing to buy things you’d otherwise not afford, it will get you stuck in a spiraling debt cycle. Never allow the points or awards accumulation that comes with using a credit card to cause you to spend more than you should.
People in the 800 and above credit score club don’t spend more than they earn and do not apply for more credit than they can afford. Such people have emergency funds to cater to a financial crisis that comes their way.
Therefore, avoid taking on new credit accounts, especially large loans that you cannot afford. Instead, open new accounts as you need them and be prudent about the type of accounts you open. Remember, every time you open a new account, it lowers the average credit age, which eventually lowers the score.
Avoid Too Many Credit Score Inquiries
Every time you make a loan application, it requires the lender to make a credit check, with only a few exceptions like online payday loans. A hard credit check inquiry is placed on your credit report, which may hurt your credit score.
A hard inquiry accounts for around 10% of your credit score. While this may seem like a small amount, it can make the difference between getting a credit score of 800 or less depending on the information on your credit report. Be sure to do your homework well before you apply for credit to avoid multiple credit inquiries.
Leave Old Accounts Open and Keep them Active
The average age of credit is crucial to the credit score. Your credit score considers both the average age of all your accounts and the age of your oldest account. Thus, keeping your old accounts active helps you to have a mature average credit age.
Don’t Let your Accounts Wind up in Collections
If you delay paying your bills, they may end up in debt collection companies. Having a delinquent account taken over by a debt collector can drop your score significantly. Thus, to keep your score high, make sure you settle all your bills, including those that you might think are minor, like a small library fine.
Benefits of Having 800+ Credit Score
Having an 800 credit score comes along with plenty of perks. They include:
Better Credit Offers
Getting better offers is one of the biggest perks of having an above 800 credit score. With such a good credit score, you’ll be a perfect candidate for the different mix of credit like a mortgage, an auto loan, credit card, student loans, personal loans, among others. Most lenders will be eager to lend you money, and their terms will also be more favorable than those for people with lower credit scores.
Lower Interest Rates
When you have a perfect score, you’ll get credit with the best rates in the market. You may even get below the average interest rates from some lenders, which will be a plus. This can save you a huge chunk of cash, especially on a long-term loan, like a 30-year mortgage.
Higher Credit Limits
This is yet another advantage of having an over 800 credit score. A higher limit increases your purchasing power and helps maintain a lower credit utilization ratio, which can help maintain your perfect credit score.
Your Loan Applications have a High Chance of Approval
When you have a high credit score, most lenders will be quick to offer you a loan since it indicates that making payments won’t be an issue. You’re a less risky borrower, which increases your chances of being approved for credit. A good credit score shows that you’re credit-worthy.