To have a high credit score, individuals tend to keep revolving balances low to their available credit, not max out credit cards, and consistently make payments on time, according to the company behind the FICO credit score.
FICO recently released findings from a study about the habits and behaviors of those who have the highest credit scores — 785 or greater. These high-credit scorers tend to qualify for the best mortgage rates, saving thousands of dollars over the life of a loan.
Nationwide, 25 percent — or 50 million people — are considered “high achievers” with their credit scores.
“High achievers” tend to exhibit some of the following behaviors, according to FICO:
•96 percent have no missed payments on their credit report. For any who have a missed payment, it occurred, on average, about four years ago. (Payment history makes up 35 percent of a person’s credit score.)
•They tend to have a well-established credit history and rarely open up new accounts. On average, the oldest credit account was opened 25 years ago. Overall, according to FICO, these “high achievers” tend to have credit accounts that are at least 11 years old.
•They’re not always debt-free: They average about seven credit cards, including both open and closed accounts, and have an average of four credit cards or loans with balances. One-third of “high achievers” have balances of more than $8,500 on non-mortgage accounts. The remaining two-thirds have total balances of less than $8,500.
•About 1 in 100 have a collection listed on their credit report. What’s more, 1 in 9,000 has experienced tax liens or even a bankruptcy.
“While people with a high FICO Score are not perfect, their consistently responsible financial behavior usually pays off over time,” says Anthony Sprauve, credit score advisor for myFICO. “In a challenging economic period, the fact that we all have a chance to be high achievers is very good news. The lesson from these high achievers is that it’s never too late to rebuild and score high.”
Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:
2. How much you owe. If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it’s a good thing if you have a good proportion of balances to total credit limits.
3. The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer’s oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.
4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.
5. The types of credit you use. Generally, it’s desirable to have more than one type of credit — installment loans, credit cards, and a mortgage, for example.
For more on evaluating and understanding your credit score, visitwww.myfico.com.
Credit score requirements for loans are higher than they have been in the past, so a good credit score is more crucial than ever. In today’s economy most lenders are looking for credit scores of 720 or higher to secure a low mortgage rate. Here are seven ways to build up your credit score so you can enjoy the best interest rates available.
Request your credit reports and assess the situation. Credit bureaus (www.experian.com, http://www.transunion.com, http://www.equifax.com) are required to provide you with a free credit report every year. Nationwide consumer reporting companies get their information from different sources, the data in your report from one company may not reflect the same data in your reports from the other two companies, so request all three.
Check to verify all of the information is correct. If there are any errors, contact the bureaus immediately.
Your payment history accounts for 35% of your score, so make sure payments are on time every month.
The amount owed is 30% of your score. A good rule is to use less than 10% of your credit available on each individual card.
The length of your credit history accounts for 15%, so maintain your accounts instead of closing them. You are not penalized for available credit.
New credit is 10% of your score and every time you apply for credit an inquiry is added to your report, which drops your score.
Types of credit used accounts for 10%. Installment loans like vehicle and personal loans demonstrate you can manage various long and short-term credits.