How to Improve Your Credit Score

Only 1% of US citizens have a perfect credit score of 850, and most of them are baby boomers who have been using credit sensibly for decades. Though 850 may be a stretch for some, the best range is generally considered to be between 760-850. Spending money consistently and wisely is key, not having a lot of it. The amount of money you actually have is not really that important; it’s all about how you manage it. Billionaire investor Warren Buffett famously has a terrible credit score despite his fortune! In this blog, we’re going to share a few tips for improving your credit score.

First of all, try to have 4-6 revolving credit accounts. Having 4-6 credit accounts (that you pay off on time and use responsibly) can make you look very responsible and versatile with your credit usage. This could mean juggling mortgage payments, student loans, and a couple of credit cards, for example. Juggling different types of credit accounts and using them all responsibly makes you seem very sensible and organized. The more diverse, the better.

Also, aim to have a least 1 “installment” trade line that is in good standing. For example, it is ideal if you have something that you pay off in regular fixed installments every month. This could be a car loan or a mortgage payment, for example. Fixed monthly installment payments are a good and stable marker for your spending habits, and show that you can meet consistent demands financially.

Ideally, you want to have a few accounts that are at least 20 years old, and that are in good standing. Obviously, this isn’t ideal for young people, who cannot exactly meet this requirement. 30 years (or more) of positive credit use is likely to contribute to a high credit score, and this is why many young and middle-aged people struggle to reach perfect scores. You should also avoid late payments like the plague, as these are one of the most powerful ways to drag down your credit score. You ideally want to have had no late payments for at least 7 years.

Avoid numerous credit inquiries. Good scores are shown for fewer credit inquiries and applications. Don’t apply for credit cards and other similar forms of credit if you don’t need them. A single inquiry can lower your car by up to 35 points, so applying for credit cards that you don’t really need is a very bad idea.

Also, avoid derogatory notations. These are negative notes on your credit report that suggest you have acquired fees or charges for mishandling payments or producing late payments. Negative information about your credit history can legally stay on your credit report for up to 7 years, even if you have been perfect ever since. Bankruptcy, due to its seriousness, can stay on your credit report for up to 10 years, and will obviously have an extremely adverse effect on your score.

Counterintuitive though it may seem, it is generally a good thing to owe some money on your credit cards, yet to pay it off consistently and on time. If you are an extremely risk-averse person who uses only cash and debit cards, FICO essentially has no record of you borrowing on paper (because you haven’t!) and tends to be cautious with your subsequent score.