You might find yourself asking why you were not approved for a loan or credit card. That decision was made based on many factors. Some of those reasons might be because there is a history of not paying on time, you do not have any credit yet, or you are adding too much debt into your accounts. If you are looking to improve your credit score, I will be listing some tips as well as what goes into your score. Ultimately you can use these to see how you can get an 800+ credit score! First, we will be breaking down the categories that are used to determine your score.
Credit Score History
- Payment History- 35%
- 35% of your score is made up of your payment history. The largest portion of the score is going into whether you are paying on time or not. Make those payments on time! If you find that hard to do, set a reminder somewhere visible for you and put it a couple days prior to the due date.
- Credit Utilization-30%
- Another big chunk of your credit score goes into a ratio. This ratio is determined on how much credit you have available vs how much you owe. You want to keep this ratio low, which means not maxing out your credit cards.
- Length of Credit-15%
- 15% of the credit score is compiled based on how long you have had your accounts and credit score for.
- Credit Inquiries- 10%
- Credit Inquiries are any cards or loans that you have recently applied for. They will be showing up on your credit score when someone looks. This is why you don’t want to apply to multiple loans at the same time.
- Credit Mix-10%
- 10% of your credit is coming from the variety of loans you have. You want to distribute your credit with credit cards, car loans, mortgages, etc. You do not want to just stay on one side of the spectrum.
Credit Utilization Ratio
This ratio, once again, is made up of how much you owe and how much available credit you have. You want to keep it low because you do not want to give the image that you need all the money, they are handing you. Lenders basically want to see your money habits as well as your organization and responsibility with their money. This is because they want to ensure that their money is going to return, which is why they usually grant it to those with higher scores. A higher score is usually an indication of low risk for lenders.
Credit Habits to Adopt
- Pay On Time
- Keeping in mind that payment history is the largest portion of your credit score, therefore make sure the payments are coming through on time.
- Keep Balances Low
- By maintaining a low balance, you are also keeping your credit utilization ratio low which is ideal for lenders. Most lenders suggest spending about 30% of your credit line to ensure you are not maxing out your cards.
- Create a Good Credit Mix
- Opening a new Credit Card can be something good for you even if you already have loans in place. This will create variety in your loans. Lenders do not only want to see that you are disciplined in paying your mortgage but they also want to see you are consistent with smaller purchases as a credit card or vice versa. Of course, do not go applying to mortgage loans just because you want a mix, but keep it in mind for future reference.
- Review Your Report Frequently
- There is always the possibility of something going wrong or an error being loaded to your score. To make sure that your score is as accurate as possible, check it frequently.
5 Things to Stay Away From
- Late Payments
- You want to stay as far away as possible from this one, because lenders want to see that you can pay that money back on time. Making late payments is the first strike and will tear your score apart considering it is the largest portion.
- Going Above 30% of Credit Line
- Spending no more than 30% of your credit line is ideal to increase your score. This will ensure that your credit utilization is staying low. This also gives you a reasonable amount to pay back within the time frame of no interest.
- Applying For a Lot of Credit at Once
- You might think that applying for some sort of credit will not affect you if you do not take it but these things do show up for lenders. When lenders go in to check your score and find 10 different applications, they might get the wrong impression. They will think you need that money because you do not have it which to them means their money will not be coming back.
- Leaving Credit Unused for Long Periods of Time
- Being consistent is one of the ways to grow your score faster. Going missing in the credit field will not give a good image to lenders. They want to see consistence and responsibility.
- Closing Credit Cards
- Closing credit cards is one of the aspects that seems to make the least sense. If I am no longer using an old credit card why not close it. Do Not! Closing credit cards will affect your score in many aspects. For one, you will be decreasing that credit you have available which means your credit utilization ratio will be higher. Another way this will affect you is the length of your credit history. If that was an old credit card that you had for about 10 years, it serves as “prior experience” and indicated length is history. The last way it can impact is if it changes your credit mix. If you only had that credit card it will shorten your mix and decrease your score.
Benefits of Having a High Credit Score
Why should I even care about my credit score? Having a high credit score not only increases your chances of being approved for any loans but it also adds a lot of benefits to those loans.
- Low interest
- People with low credit scores could be facing extremely high interest, finding themselves paying most of the money to the lender instead of the actual cost. If you have a good credit score you will find loans with very low interest that allows you to pay less and sooner.
- Higher Credit Limits
- Having a high credit score will also drive lenders to trust you with more. Since you are only supposed to spend about 30% you might find that it is not much help. Once you have grown your score you have the ability to spend more since your credit line is increased.
I Do Not Have Any Credit, What Do I Do?
A good way to get started is through secured credit cards. Since most lenders will not trust you with any money at first, you will have to use your own. Some places allow you to give them an amount. It can be something like $400. The financial institution will take that money to test your habits. You will have to pay everything you spend within that month, again for lenders to make sure you are trustworthy. After about 6 months to a year the institution will send you your money back and increase your credit line.
Growing your credit score can seem difficult and complicated but it mostly comes down to paying your balances on time, and being wise about how much you spend. It is important to consider the other factors but remember the two biggest categories, payment history and credit utilization. If you are looking to hear from a personal perspective you can go to the video Jared has offered on the Wilson Rogers & Company YouTube channel: How To Get A 800+ Credit Score.