How Consumers Achieve High Credit Scores
Ever wonder how people achieve high credit scores? 750? 790? 800+? It’s not fantasy but there are those who are both dedicated to building a pristine credit file or simply pay their bills on time and their scores gradually rise. But getting these high numbers is no accident. There’s a method to all this and if you’re wanting to get your scores in the stratosphere or just want to improve your current credit standing, there is a roadmap for you to follow.
You must first understand how these three digit scores are calculated. Scores range from as low as 300 to as high as 850. Although I’ve never seen any score as low as 300 or as high as the perfect 850. Personally, I think either is impossible to achieve. That said, those with excellent credit didn’t get those scores by accident. Credit scores assign values to five different credit patterns. Those are:
• Payment History
• Length of Credit History
• Types of Credit Used
• Credit Inquiries
Payment History is listed first because it has the greatest impact on a score. This one category alone makes up 35% of your total score. This makes sense because this is the one single measure of someone uses and manages credit. A consumer credit report won’t list when account payments were made but will list when a payment is made more than 30, 60 and 90 days past the due date. As long as a credit account payment was made before 30 days, the score won’t be negatively impacted, and scores will gradually improve. Note, if someone makes a monthly payment say 20 days past the due date, while it won’t impact the score the consumer will likely pay some sort of late payment fee to the creditor. If a payment is made more than 30 days past the due date, scores will begin to falter. More so if a payment is made more than 60 and then 90 days past the due date.
The second most important category is credit utilization. Some may think that carrying a zero balance and leaving the account alone that way is a good way to increase credit scores. That’s not the case at all. And if you think about it, how would any algorithm calculate a credit score if there is no activity, right? Utilization accounts for 30% of the total score. There should also be a running balance instead of paying off the credit account to zero each month. Most creditors report payments at different times so carrying a balance is typically an automatic. However, scores do improve is the running balance is approximately one-third of the total credit line.
How long someone has used credit also contributes to the total score. If someone has used credit for a long time, that counts more toward a score compared to someone brand new to the credit world. Even if someone with a history and a credit newbie have perfect credit histories, the person who has used credit responsibly over a longer period of time will be rewarded. This category represents 15% of the total score.
Finally, using different types of credit accounts helps out. A car loan, credit card and installment accounts are a good mix and accounts for 10% of the total score. Recent credit inquiries also make up the final 10% of the score. Credit inquiries are those when an individual makes multiple requests for new credit accounts within a relatively short period of time. One of two recent inquiries won’t do much harm but more than that can.
How consumers achieve high credit scores means concentrating on the first two, payment history and utilization. These two alone make up nearly two-thirds of the total score. By paying attention to payment history and keeping a running balance near the magic mark, scores can and will begin to rise from any level.
Written by David Reed for www.RealtyTimes.com Copyright © 2019 Realty Times All Rights Reserved. Reed is from Austin, Texas and is the author of The Real Estate Investor’s Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. A Senior Loan Officer and Mortgage Executive for more than 20 years, he has also appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show.