Credit scores are used by landlords, employers, phone service providers, mortgage lenders, insurance companies, and everyone else in between to determine an individual’s financial status and creditworthiness. Credit scores are rated from 300 to 850. An average credit score is 687 in the US.
You would be seen as a high-risk consumer if your credit score is around 300 to 500. Low risk consumers are those with credit scores above 700. Loan applications tend to get approved quickly with 800+ credit scores. You could also qualify for a lower mortgage rate.
Achieving 800+ Credit Score
These strategies should help you achieve 800+ credit score and maintain it.
1. Always Pay Bills on Time
One of the most important factors determining your credit score is your payment history. Your score could be affected horribly if you are in the habit of making late payments. No bill amount is too small when it comes to improving your credit score.
You need to clear all bills, whether they are for magazine subscriptions, utility, or cable. It doesn’t matter whether the bill is a $10 subscription fee or a $1,000 mortgage payment you need to make sure you are never late on settling dues.
2. Focus on Creating a Long Credit History
Another important factor contributing to your overall credit score is the length of your credit history. Longer credit histories usually translate to higher credit scores.
People with a short credit history are viewed as high-risk. Most lenders are antsy dealing with people that don’t have a financial history to show. It is recommended that you keep your old accounts open for as long as you can and to use them as much as possible.
3. Never Max Out Credit Cards
Maxing out credit cards is a rookie mistake in credit score 101. This is especially true if you use the card to pay all your bills in full. There are two reasons why carrying over a large credit balance to the next month is a bad idea. Your credit score will be negatively affected which can be disastrous in the long run. Also, you may have to pay thousands in interest.
The best way to prevent this from happening is to always maintain your credit utilization ratio at 30% or less. This is a healthy figure which can be calculated by dividing the complete debt by available credit limit. Multiply it with 100 to achieve a percentage figure.
For instance, if your credit balance is $1,800 and your credit limit is set at $10,000, your credit utilization ratio is 18%. This is a healthy credit utilization ratio which should ideally be between 10% and 30% of the total credit limit. You should also make it a point to pay off all your bills every month in full without any leftover balance.
4. Don’t Keep Several Credit Cards
While it’s okay to keep two credit cards, you need to stop at five. Having several credit cards makes it difficult to keep track of your spending. You may inadvertently end up carrying a large balance rollover. Also, when you apply for several credit cards in a short span of time, it adversely impacts your credit score.
5. Practice Diversification
Accounts diversification can help in improving your credit rating to some extent. You should consider products, such as credit cards, retail accounts, student loans, auto loans, and mortgage. However, don’t take out unnecessary loans for the purpose of diversifying. The only time you should get a loan is if you need it and know that you can pay it back.
6. Avoid Adding to Your Liability Burden
Co-signing for other people and becoming liable for their debt is a bad idea. You are already liable for your own bills. Nobody needs the additional burden of liability. You become responsible as the co-signor to pay off the loan if the primary borrower manages to default.
Your credit score can be severely affected if you become a guarantor or a co-signor to someone’s loan and they are unable to repay it. This is especially true if the amount is large.
Importance of Protecting Your Credit Score
You need to understand that your credit rating is fluid and tends to change depending on the financial decisions you take. Until we adopt a better way in determining someone’s financial responsibility this is the system we are stuck with. Moreover, your payment history, spending habits, and numerous other factors account for your present credit score.
You should give serious consideration to hiring a credit score monitoring service to consistently maintain a credit score of 800+. The monitoring service can keep a check on your credit rating and notify you immediately when things begin to slip. This will give you enough time to take steps to get your score back on track.
There are risks to having a perfect credit score too. You are at a serious risk of identity theft. Identity protection service can help you secure your identity and send alerts in case of any suspicious activity.