15 Aug Do you have an 800+ credit score? Find out what it takes to get there!
One of the worst things that can stand in the way of your next home, car, refinancing, or other financial activity is having a bad credit score. Building your credit is one of the best ways to enable your financial opportunities for the future.
Let’s breakdown the basics of a credit score and how you can earn a great one.
What is a Credit Score? What Impacts Your Score?
2 Major Scoring Companies, 5 Major Scoring Factors
A credit score is a rating from an agency that indicates what your likelihood is to pay off a loan to potential lenders. FICO and VantageScore are the two major US scoring companies, and while each have a unique scoring formula, they agree on which factors are most important:
- Payment history (35%) – whether you’ve paid past credit accounts on time.
- Credit utilization (30%) – whether your current balance is a low or high percentage of your available credit.
- Length of credit history (15%) – how long your credit accounts have been established, age of oldest account, age of newest account, average age of all accounts, and how long since you’ve used specific accounts.
- Mix of credit types (10%) – whether you have a mix of credit cards, retail accounts, installment loans, finance company accounts and/or mortgage loans. You don’t need a particular mix, but a diversity of credit types is scored favorably.
- Recent applications/hard credit inquiries (10%) – how short-term inquiries may propose additional risk, amplified by shorter credit histories.
What’s a good score?
WithFICO scores: “in general, many lenders find scores above 670 as indicating good creditworthiness. Typically, the higher your score, the lower the risk and the more likely creditors are to lend to you” (myfico.com).
An exceptional score is 800+. A small percentage of Americans have credit scores in the 800+ range, enabling those fortunate enough to leverage credit in advantageous ways.
So what can you do to be among them and to receive the benefits of having an excellent score? Here are our top eight tips:
- Check your credit report for errors to ensure you are being scored fairly.
- Always pay your bills on time.
- Reduce the amount of debt you owe relative to total credit available.
- Don’t open too many accounts too quickly. Rapid or excessive borrowing can be a bad sign.
- When getting a loan, handle your shopping around within a limited timeframe of 1 to 3 months.
- Only apply for and open new credit accounts as needed.
- Understand that closing an account does not make it go away.
- Consider a service such as Experian Boost to “scan” your bank transactions for data such as on-time utilities payments that would likely increase your credit score.
Need More Help?
There are a plethora of additional services and educational resources that you may leverage to increase your credit understanding and management.
Are you interested in learning from a Certified Financial Planner™ on your unique situation and beginning a financial plan that fits you? At Axias Wealth Advisors, our team can help in a one-on-one session to educate you on the entirety of your financial plan.