The 850 credit score is the pinnacle of all scores. According to a 2010 estimate by the Fair Isaac Corporation, the business that created the aforementioned FICO score, one in 200 people reach perfection on the commonly used FICO credit score scale.
There is no denying the benefits of having a flawless or even good credit score (consider 750 or better). It places the onus squarely on the consumer rather than the lender. Lenders will frequently compete for your business, and almost always, they will offer you the best interest rate, giving you the lowest long-term mortgage and loan payments of any customer.
What therefore is required to obtain this credit score holy grail? I’d say not much, as one of the fortunate 1 in 200 people with a flawless credit score. There is no secret society or quick fix to getting the perfect credit score, however it does need some devotion.
I’ll provide you ten credit suggestions in this article that should aid you in achieving a credit score of 850.
1. PAY YOUR BILLS ON TIME (AND DON’T BE AFRAID TO REQUEST A WAIVER IF YOU’RE LATE)
Your payment history makes up the majority of your FICO credit score, which probably goes without saying. CreditCards.com has discovered via FICO that around 35% of your score is generated from your payment history, despite the fact that FICO maintains a strict code of secrecy regarding its exact scoring algorithm. Your credit score will suffer if you make a lot of late payments and/or have collections on your record.
However, even if you occasionally make a late payment, it’s frequently beneficial to ask your lender to overlook it (if you have already made your payment and are now current on your account).
Since most people aren’t flawless, we occasionally forget to make payments. I once paid a credit card bill a day late, but I had made on-time payments to the lender in question for at least five years prior. The lender agreed when I requested that the late fee and negative credit mark be removed. For lenders, it’s frequently less expensive to make a small concession to clients they’d like to keep than to invest a lot of money in attracting new ones.
2. SET UP AS MANY AUTOMATIC PAYMENTS AS POSSIBLE
Setting up as many automatic payments for your credit accounts as you can is one of the best methods to lower the likelihood of a late payment and get rid of the industry-wide “I forgot” defense. You can avoid being late on your payments by setting up automated withdrawals from your bank account or charging your credit card (provided you pay it off each month).
I’ve also discovered that paying bills online through your bank can be a very clever approach to lower your odds of paying your bills late. If you mail your bills in, not only do you incur the danger of your payment arriving and being processed beyond the due date, but online banking is also incredibly rapid and makes record keeping quite simple.
3. DON’T CARRY A BALANCE IF YOU DON’T HAVE TO
If you can, pay your credit cards off each and every month. One of the greatest misconceptions is that you need to carry a balance on your credit cards to improve your credit score, which just isn’t true. As long as you’re paying your bill on time each month, even if that bill is paid off in its entirety every month, then you’re going to see a long-term positive benefit in your credit score.
I’ve been paying my credit cards off in full for the past 12 years, which has helped reduce the overall cost of the goods and services I’ve bought since there’s no interest to be paid. It also helps keep your aggregate credit utilization down, which comprises about 30% of your FICO credit score.
4. DON’T CHECK YOUR CREDIT SCORE EACH MONTH
Another somewhat common misconception is that you need to stay on top of your credit score like a hawk. Your credit history is akin to a roadmap that lenders use to decide whether to loan you money, and if so, what interest rates you’ll qualify for. It takes a lot of data points to paint an accurate picture for lenders. This means that your credit score can take a long time to adjust upward, especially given that your length of credit history contributes to about 15% of your FICO credit score.
It took me 17 years to achieve an 850 credit score. While it’s certainly possible you could do so in fewer years, watching your credit score each month is probably going to drive you mad. Limit your credit score checks to between two and four times annually. This will give you a bigger-picture look at your progress.
5. DON’T BE AFRAID TO INCREASE YOUR CREDIT LIMIT
It’s sometimes puzzling to me why consumers resist when lenders offer a credit limit increase, or why they fear asking for a higher credit limit. If you’re a compulsive spender, this fear would be justified. In all other cases, I’d suggest cardholders embrace the idea of higher credit limits.
The idea here is simple: The higher your credit limits, the less likely you are to use more than 30% of your aggregate credit, which is the line-in-the-sand point where your credit score could be dinged. Yes, increasing your credit limit will likely involve your lender taking a hard look at your credit report, and it may result in a temporary loss of a few points on your credit score. But over the long term it could help lower your credit utilization rate, which will have a considerably more positive impact on your credit score as long as you remain responsible with your spending.
6. ASK YOUR LENDER TO LOWER YOUR INTEREST RATE
Though this idea might sound insane, asking your lender for a lower interest rate tends to work more often than not. The thing is most cardholders don’t make this request because they are either afraid to do so or believe they’ll be told “no.”
As noted above, lenders spend far more money to bring in new customers than they do by caving in to a few concessions from those with excellent credit score. If you ask for an interest rate reduction, you just might get it, which means lower costs for you and possibly the ability to pay down your debt faster if you’re carrying a balance. Worst-case scenario, you’re told “no” — and there are far worse things on this planet than that.
7. KEEP GOOD-STANDING ACCOUNTS OPEN AND USE THEM FROM TIME TO TIME
One of the bigger errors consumers make is closing good-standing credit accounts because they believe credit card companies will view the action as “responsible.” In other words, consumers believe that by having fewer accounts, they’ll be demonstrating to lenders that they can responsibly manage their credit.
Unfortunately, that’s not how things work. The length of time your credit accounts are open comprises about 15% of your credit score. If your accounts are in good standing, leaving them open for an extended period of time will help your credit score. I’d suggest making an attempt to use your rarely used, good-standing accounts once or twice a year to ensure they stay open and aren’t closed by your lender.
8. ONLY OPEN ACCOUNTS WHEN IT MAKES FINANCIAL SENSE
An important factor in your march toward an 850 FICO credit score is to ensure that you only open new credit accounts when it makes the financial sense to do so.
In a given year, I’m offered somewhere in the neighborhood of 50 to 60 credit cards, and I haven’t opened a new account in at least four years. Opening a credit account makes sense when it’s an exceptionally large purchase, such as a house or car, or when it’s a large purchase that would strain your checking or savings account. In other words, avoid opening multiple new credit accounts just to save 10% on that $29 shirt you want.
9. FOCUS ON YOUR REVOLVING DEBTS FIRST
If you happen to carry a balance on your credit cards, it’s important for consumers to focus on paying off their revolving debts first.
Whether you are aware of it or not, FICO actually considers the many sorts of debt you pay when determining your score. Revolving debt and installment debt are these two sorts of debt. Your minimum payment is calculated depending on the total amount owed, and revolving loans often have higher interest rates. Credit cards from department stores are a good example. Installment loans are fixed loans with a long repayment duration, such a vehicle loan or mortgage. Paying off your revolving bills first can frequently result in lower interest rates.
10. CHECK YOUR CREDIT REPORT ANNUALLY
Last but not least, take advantage of the fact that each of the three credit bureaus allows you to examine your credit report for free once each year. The possibility that one or more of the three credit-reporting bureaus has a mistake on your record is more likely than you may imagine because far too many consumers neglect to check their credit reports annually. If you haven’t checked your credit report this year, go to AnnualCreditReport.com right away to make sure it’s accurate.