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According to the Fair Isaac Corporation, the creator of the FICO scoring system, the average consumer credit score hovers around 700, which is considered a good score. Anything that falls between 740 to 799 is “very good,” and anything above 800 is considered “exceptional.” But not many people reach the exceptional range. Only a little over 20% of consumers ever earn a score of 800 or higher.
Why? People with 800 credit scores use credit differently than the vast majority of credit users. Sure, they do some of the same things you do: never miss a payment, try to keep their credit utilization low, and scan their credit report for errors. However, they are much more zealous and use different thresholds for success than the average consumer.
Negative Information
Payment historyaccounts for 35%of your credit score, which is a huge chunk of it! Most of the time, average consumers can absorb a late payment or a similar piece of negative information and maintain a fairly decent credit score. If you’re chasing an 800 credit score, however, you cannot have any negative information on your credit report whatsoever.
Make all of your payments on time and regularly scan your report for negative information: late payments, collection accounts, mistakes, incorrect amounts, missing payoffs, and inflated balances. When you find incorrect information, dispute it.
If the information is correct, you can still state your case to the lender that submitted the negative information and ask them to request removal of the negative information to the credit bureaus. Sometimes, sending a goodwill letter to the lender or negotiating for the removal of negative information with a lender or collection agency is all that is needed.
Debt-to-Credit Ratio
Coming in second only to payment history is your debt-to-credit ratio. Accounting for 30% of your credit score, your ratio represents all the money you owe on revolving accounts in relation to your credit limits. For example, if you have a $300 balance on a card with a $1,000 limit, your debt-to-credit ratio is 30%.
Most credit advisers will tell you to strive for a debt-to-credit ratio that’s 30% or lower across the board on all accounts. And it’s good advice … if you want an average, good, or very good credit score. If you want an excellent score, however, you must do more.
For an 800 score, the rule of thumb is to keep your revolving balances at or below 10% of your credit limit. (People with credit scores of 800 or aboveonly use 7%of credit lines on average.) If you can swing it, 5% is better. When you get your balances down, don’t stop spending on your credit cards. The activity will help boost your score. Spend, but pay a large enough payment each month to keep your ratio within the optimal range.
Mix of Credit
Your credit mix accounts for 10% of your credit score. It’s a snapshot of how well you use a mix of credit products: credit cards, retail accounts, student loans, and installment loans (personal, auto, or mortgage). When your credit portfolio becomes too heavy in one area, your credit mix score suffers.
When it comes to a mix of credit, it doesn’t really matter how much you owe, but it does matter what types of accounts you owe on. Let’s say you owe $5,000 on credit cards and have zero installment accounts. Your score will benefit if you transfer some of your credit card balance to a personal installment loan. You will owe the same amount of money, but you will not be so heavily dependent on one type of credit, which helps!
If you don’t have any installment loans, it’s a good idea to get one. A car loan, personal loan or credit builder loan will all serve the same purpose: mixing up your credit portfolio.
If you don’t actually want to get into debt to build your credit portfolio, CreditStrong hasseveral excellent productsthat will help build your credit history and balance your credit mix.
Strategic Finance Planning
Length of credit history and new credit accounts for 15% and 10% of your credit score, respectively. If an old account falls off your report or if too many new accounts get added, it can put a serious dent into your credit score. This is why strategic planning is so important.
Most people with an 800 credit score have a long credit history, just a little under 22 years. Credit history length does not represent how long you’ve used credit. Rather, it represents the average age of the open accounts on your credit report. If you close an old credit card, it can shorten your credit history. So, it’s best to keep old accounts open.
New credit is also a concern. If you want an 800 credit score, you should have no more than one hard hit on your credit report each year. That means that you need to apply for credit sparingly and prudently.
Strategic planning is also important in your business affairs. According to a recent Nav study,22% of business ownerssaid that business credit cards were their top funding resource. That same study showed that approximately 24% of business owners use theirpersonalcredit cards as their top funding source for their businesses, too. If you’re among that number, do not forget to consider your business spending in your overall credit usage.
In addition to the above, you should scan your credit reports regularly. Make sure your name and address are correct, dispute errors and erroneous inquiries, take immediate action against negative entries, and strive to keep your credit content on point. It takes work to achieve an 800 credit score. Only purposeful, consistent action will get you there.
About the Author:
Kali Geldis has a decade of experience guiding individuals through the confusing world of credit and finance. Her work has appeared on Business Insider, MSN Money, USA Today, and many other top tier publications. She currently serves as the Editorial and Marketing Director for Nav.
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