Do You Want Excellent Credit? 5 Habits to Improve Your FICO Score

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Five habits to help your credit score
Image Source: Flickr User Kurtis Garbutt

 

The perfect credit score is 850 which is elusive to obtain. About one-half of a percent of Americans hit that high point. Currently, the average credit score in America is 695 which falls in the range that’s considered “good” according to Nerd Wallet. But when you hit 720, that’s considered excellent, but still a far cry from the perfection of 850. Here are some habits to build to get your FICO score in better shape.

 

#1 Automate Your Bill Payments

While utilities don’t usually report right away to the credit bureaus, some bills do, including credit card bills, car payments, your mortgage, car insurance, etc. By automating bill payments, you eliminate the risk of a negative item reported for a missed or late payment.

If you miss a payment once, you might be able to get your creditor to let it slide, but if you habitually make late payments, it will reflect on your credit report and lower your score. By setting up auto-pay, you can eliminate the possibility of a ding on your score.

#2 Accept Credit Line Increases but Don’t Use Them

Credit limit increases are helpful not so you can use the extra limit, but so you can lower your utilization in case you must carry a balance. Card issuers typically offer periodic credit limit increases to customers that use the card regularly, haven’t made late payments, and aren’t maxed out.

If you ever must carry a balance, say for an unexpected car repair, having higher credit lines keeps utilization low. For instance, if you have $10k in credit lines and a $3k car repair, that’s 30% utilization, which is high. But if you take credit line increase and have $20k, that’s just 15% utilization.

#3 Don’t Carry Balances Except in Case of Emergency

One of the tips to get a higher credit score is to keep your card issuers happy so they offer you credit line increases and don’t close your account for inactivity. If you sit on credit cards and never use them, creditors won’t be happy with you. Instead, use your card wisely.

You can pay utilities, gas up your car, and pay Netflix monthly then pay off the card balance each payday so you never carry a balance. If you don’t carry a balance, you won’t be paying interest but you still have positive account activity. Paying off in full each month, if you can, is the best strategy for a high score.

#4 Think Before Closing Older Accounts

When you started out building credit, you might not have gotten the best interest rate with your first credit card or your oldest account might have an annual fee. Later, when you get more advantageous cards, you might think it’s a waste to keep those older accounts.

One aspect of your credit score is your average age of credit, and this is calculated by adding up the number of years each card has been opened and dividing by the number of cards (ex. [7 + 4 + 3 + 2]/4 = 4 year average). If you close the oldest, you drop to three years. Think carefully before closing.

#5 Don’t Open New Accounts Often

If you’re rebuilding your credit, periodically opening new accounts is probably part of your plan but once your credit is established, opening new accounts should only be done periodically and strategically for a few reasons. First, every time you open a new account, you lower your average age of credit.

Second, opening too many accounts in a short period can be seen as a negative by potential creditors. Third, you may be tempted to open a new account for the wrong reason such as opening a store card to get a discount on a purchase. Only open new accounts when it’s wise.

Even if you never obtain a “perfect” credit score of 850, excellent credit is obtainable if you work at it. The better your credit score, the greater financial opportunities you may have and the more money you can save on services that are credit score-dependent such as insurance, utilities, etc.

To find out more about improving your credit score after bankruptcy, contact Credit Score Keys today. Call 919-495-2365 now for a free consultation about rebuilding your credit score.

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