Earning the perfect credit score is an excellent way to ease financial difficulties, and not just because it greatly increases the likelihood that you’ll be eligible for financial perks like low-interest loans and mortgage pre-approval. If you’ve managed to clinch a FICO credit score in the “perfect” range of 800 to 850, it means you’re already considered an effective borrower, capable of sustaining multiple credit accounts over a significant time period.
Data from Fair Isaac Co.–the company behind the formula for determining the typical 300-850 FICO score–indicates that only about 20 percent of Americans have a credit score above 800. Far lower, however, is the percentage of people who have achieved a flawless score of 850: a mere one percent. But those who have yet to attain the ideal credit rating need not worry; doing so is simpler than many might expect. The following are a few strategies that anyone can use to maintain responsible borrowing habits and optimize credit scores.
Don’t Miss Payments
Timely payments are perhaps the single most effective step anyone can take toward improving their credit score. Lenders want assurance that borrowers are reliable, and those who prove themselves exceptionally trustworthy wield significant power when negotiating interest rates and credit limits. The (very) occasional late payment is generally tolerated; however, many lenders will offer late payment forgiveness once every one to two years, provided an adequate explanation is given and the payment in question is delivered without further delay. It’s also important to note that contrary to popular myth, carrying a balance won’t benefit your score any more than paying off a statement balance in full.
Watch Utilization Rates
Much of your score is also decided by your credit utilization rate, or the amount of credit you’ve used, divided by your net available credit. A “low” utilization rate in the realm of 20 to 30 percent is generally considered preferable by credit bureaus. This means that increasing your credit limit is actually beneficial, so long as you’re disciplined enough to avoid overspending. If you’re debt-free, try to up your credit limit slightly every six months to a year.
Open a Range of Account Types
Whether you have a diverse array of accounts open determines 10% of your credit score, according to FICO. Lenders want to know you can handle a spectrum of account types; for example, your score might benefit if you can manage a home equity loan, company card payment, utility bills, an auto loan, and high-limit credit cards, among other credit variations. However, opening too many accounts over a short time period can be detrimental to the length of your credit history, which is another factor in calculating credit scores. Accounts that have been consistently paid over an extended timeframe also indicate reliability to lenders.