The Credit Card Playbook

Your ability to pay off debt faster or secure approval for the most lucrative credit cards will be impacted by your credit score, your FICO Score to be exact. Truth is, many of the best credit card offers simply aren’t available for cardholders without good credit.
But credit scores can affect much more than just credit card approvals. Excellent credit can help you land a rock-bottom mortgage rate, landlords can request access to your credit report before renting to you, and employers can access your credit report before hiring you. Even auto and home insurance providers may request a credit profile, since studies have shown that perople with low credit scores cost insurers more. Tally it all up and a sky-high credit score can mean the difference between retiring with the peace of mind we’re all after or falling short.
A perfect credit score is possible
The FICO Score scale runs from 300 to 850. How rare is a perfect credit score of 850? According to Fair Isaac Co., the developer of the FICO Score, just one in nine Americans has a FICO Score of 800 or higher, and only 1% have a perfect credit score of 850.
But a perfect credit score is actually a lot easier to achieve than you probably realize following five relatively simple, disciplined strategies. Discipline warrants repeating because the recipe for good credit is shockingly straightforward. The main reason so few Americans have sky-high credit scores mostly comes down to poor buddgeting and overlooking everyday essentials. With that in mind, here are the five simplest ways to give your credit score the jolt it needs.
1. Pay on time
Without a shred of doubt, the biggest component to achieving a perfect credit score is to pay your bills on time. Paying bills on time accounts for 35% of your FICO Score. Discipline with your payments demonstrates to lenders that you can be trusted with future loans.
Consumers should also understand that if a late payment is more of an exception than a rule, your lender may be willing to forgive it. Late-payment forgiveness is all dependent on the lender in question, but most companies will allow a late payment once every 12 to 24 months without any negative repercussions as long as you explain why you were late to the lender in question and make good on your payment.
It’s also a common myth that you’ll need to carry a balance on your credit cards to achieve a higher credit score, which isn’t true. Though your lenders would love to collect interest on a carried balance from month-to-month, all the credit bureaus care about is whether or not you’re meeting your obligations in a timely manner. If you pay your credit accounts off in full at the end of each month, you’re going to achieve the same positive benefit as if you carried a small balance.
2. Mind your credit utilization rates
Another really important aspect of a perfect credit score is being mindful of your credit utilization rates, which comprise for 30% of your FICO Score. In other words, add up your aggregate available credit versus the amount of credit you currently have used. If this figure is below 10%, you’re doing a pretty good job. The lower the better.
Credit bureaus are usually wary of seeing utilization rates that tip the scales above 30% as it implies that you either don’t have good money management skills, or that you may have difficulty repaying your debts. Our picks for the best balance-transfer credit cards can help you pay down debt faster.
3. Have a good mix of accounts
A third strategy is to keep a good mix of credit accounts open at all times. Your credit mix accounts for 10% of your FICO Score. Just as creditors want to see that you can make on-time payments, and that you can keep from utilizing too much of your available credit, they also want to observe your ability to handle different types of credit accounts.
For example, credit agencies are looking for consumers that have a good mix of installment loans, such as a mortgage, car loan, or student loan, and revolving credit, like a department store credit card or bank credit card. If you can handle a good mix of debt obligations, creditors are more likely to lend to you, and your FICO Score is liable to benefit.
4. Keep your accounts for at least 5 years
Your credit score should also receive a big boost by keeping your good-standing accounts open for long periods of time. Average credit age accounts for 15% of your FICO Score and a minimum of five years should be the goal when aiming for a high score.
Both your lenders and credit reporting agencies examine your account history as a roadmap to your credit worthiness. If you have a perfect payment history, but just six months’ worth of credit history, lenders may still have reservations about your ability to meet your debt obligations. However, if your average good-standing credit account has been open for five years, you’ve demonstrated to creditors and the credit agencies that you’re quite trustworthy.
A word to the wise here is not to close long-standing credit accounts, even if you don’t use them often, and assuming annual fees aren’t a hindrance. Long-tenured accounts can provide a big boost to your average length of credit history, which is one of the factors that affects your credit score. Make an effort to use all of your credit lines a couple of times a year in order to keep them active and in good standing.
5. Be mindful of opening new accounts
Lastly, while credit bureaus want to observe your ability to manage multiple types of credit accounts, you’ll also want to be careful not to open too many accounts. New credit inquiries comprise 10% of your FICO Score.
The easiest thing to do is ask yourself if a credit account is necessary based on your purchase. If you’re buying a home, a car, getting a college education, or even buying a new washer and dryer for your home, opening a line of credit probably makes sense as these are large-money events. However, if you’re buying a new shirt for $19.95 at your local department store, then opening a new account to save 10% probably isn’t a prudent move. It can be especially prudent to open new accounts with discretion as you get older since a new account can adversely impact your average length of credit history, as well as knock a few points off your FICO Score in the near-term due to a hard credit inquiry.
If you follow these simple strategies, remain disciplined, and give it some time, a perfect credit score of 850 is actually quite achievable and landing a score over 800 is all the more likely.
Next steps?
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