It's not that they don't have money to cherish, time to relax, or healthy food to eat. It’s just that they are unable to handle credit wisely.
Are you one of them? C’mon don't you lie. Else you would not have been here.
Maintaining an excellent credit score is more dependent on your financial habits than how much you earn.
So, what are the habits of people with excellent credit score?
You can't just go to FICO or VantageScore and pay a few thousand dollars for a good credit report or score. It’s like a ritual you have to practice for decades to see a significant rise in your credit score.
But people are achieving it, aren't they?
It’s pretty often we come across someone at a cafe, bar or beach, who has a stunning credit score of 800 or above.
What are the secrets? How to improve credit score?
1. They have a long trustworthy credit and payment history:
This credit history accounts for 15% of your total credit score. The payment history accounts 35%. Whoa!
Just imagine you have a 15 years long line of credit or loan with a clean payment history. You will immediately convey a good reputation when you approach any creditor or lender for credit cards or loans.
This is the big tool surfaced by geniuses in achieving an excellent credit score. This is the art.
You open a line of credit, keep on making timely payments and have the account open for a subsequently long time, say more than 10 years, and bingo!
So before you think much, my advice will be to straightaway get hold of your recent credit accounts and maintain regular monthly payments from now on.
Tips to follow in building a good credit history:
- Don't close your first credit card account, if it’s doing you no harm by charging annual fees or so.
- Request to report your rental history to the 3 major credit bureaus
- A good mortgage history is your catch
- Never miss the dates of debt payment
- If possible, make payments twice each month
- As per a study, people with perfect 850 FICO score has a credit history of 50 years; prepare yourself for the marathon.
2. They go for the proper mix of credit
Is just a good long credit history enough for you to take out credit cards at suitable terms and conditions?
The masterminds go for the perfect credit mixture.
They maintain different types of credit, and manage them properly, at the same time.
But, this doesn't mean you apply for all kinds of credit rapidly. That will be idiotic.
The credit mix accounts 10% of your credit score, which I consider is not a small section. If you look at a good credit report, you will see that having a good credit mix makes you more creditworthy to your future creditors/lenders.
Having various types of opened credit accounts with a long and positive history for each, is like green signals for a lender, when you apply for a loan.
So how will you do the credit shopping?
3. They maintain gaps between their credit shopping:
Have you heard about the hard inquiry? No? Yes? Whatever!
It is the red eye on your credit report.
Every time you ask for a credit line to be opened for you, the creditors take out the eyeglasses and scan your report to make sure whether or not you will be able to manage it properly. The same thing happens when you take out a loan. The lender wants to be sure that you’ll be able to repay it on time.
Now this scanning is really harmful and you better watch out.
This can bring down your credit score.
Again there is a trick played by credit-heroes, who have excellent credit score. They never shop for credit cards frequently. They tend to maintain a gap of 6 months between two credit cards’ shopping.
But, the thing is a bit different with mortgage, auto and student loans. You need to rush. FICO counts multiple hard inquiries within 30-45 days as one single inquiry.
So be wise and do your shopping apparently.
4. They keep the debt-to-credit ratio low :
This is also called credit utilization ratio. This makes way into your new credit section which makes 10% of your credit score.
Try to keep your credit card balances low. Those with excellent credit scores keep their debt-to-credit ratio always lower than 10%. The ratio is calculated as balance owed to the account’s credit limit.
So what are the ways to be brilliant at this?
- Get credit cards with high credit limit
- Decrease your credit card usage
- Make duly payments and keep the balances on your credit card low
5. They are always attentive:
They check their credit reports time to time for any unauthorized hard pulls.
Hard pulls are hard inquiries that we discussed earlier in this post.
Whenever you get a pre-qualified credit card offer, it is evident that the financial institution has done a slight background check on your report. But that’s a soft inquiry, which you should not get worried of.
The difference between hard and soft inquiry is beyond the scope of this post. We can discuss that in some other article.
So you need to be always attentive and look out for any unauthorized hard pulls done on your report.
If you find any, send a letter to the credit bureaus and get it removed since they do spoil your credit score.
More credit score tips from the experts:
- Go for credit cards and loans that you can afford and manage properly
- Pay bills on time; if required set a reminder to make bill payments
- Try to keep multiple credit accounts, with good long history, open
- Swipe credit cards for an amount, which you can repay comfortably at every billing cycle