Credit scores range from 350-850. According to FICO Inc., in 2010 the number of consumers with a credit score of 800 or above has risen along with the number of consumers with a credit score of 599 or less.
The rise in the number of consumers with high credit scores and low credit scores can both be attributed to the recession.
Consumers with high credit scores have cut spending and paid down debt while consumers with lower credit scores are experiencing economic difficulties such as foreclosures or loss of employment.
You may have thought about how to get a credit score of 800 but were at a loss as to steps you can take. If having an excellent credit score is your goal, you can achieve that goal by using some of the below tips:
1. Stay ahead of your credit reports.
You are entitled to a free credit report from each consumer reporting agency once every 12 months by ordering at: annualcreditreport.com. Review your credit report for accuracy, making sure there are no mistakes.
Big credit score killers are late payments, collection accounts, charge-offs, bankruptcies, judgments and under-reported credit limits. Dispute negative credit information, inaccurate or outdated information and always request deletions.
2. Monitor your credit scores.
Credit scores can change daily, depending on the number of creditors you have reporting to the credit bureaus and the information being reported. If you are in the market for an auto or mortgage loan it is especially important to monitor your credit score before you apply for a loan to eliminate any surprises. Know where you stand and monitor your credit score with Equifax ScoreWatch™.
3. Pay bills within the grace period.
Credit card companies and lenders report late payments once you are 30 days past due. A high credit score can decrease as much as 100 points for one late payment. If your credit score is low, the points it decreases will not be as much; but nevertheless, any points your credit score suffers due to late payments is significant. If you are late your credit score and recover within a several months if you pay on time going forward.
Set up automatic payment deductions or put a system in place to remind you to make a payment by a certain date. Do not wait until the actual due date to pay your bills.
4. Pay more than the minimum due.
Paying more the minimum not only helps you get rid of debt faster, you also put more money in your pockets by paying off debt sooner. Additionally many consumers are unaware of the fact that credit reporting agencies report the amount of outstanding debt in addition to the length of time it takes to pay off the debt.
Paying more than the minimum will especially help improve your credit score if you are maxed out or close to being maxed out to your credit limit. Having a credit card balance at or near your available credit limit will hurt your credit score. Get a step-by-step plan to pay down your debts more quickly and save money on interest from Equifax Debt Wise.
5. Work with your creditors if you fall behind.
Credit card companies and lenders may negotiate a payment plan if you get behind on your payments. There usually has to be an acceptable hardship that has occurred such as loss of income or illness. But you never know until you ask.
Lenders want your money, not a charge-off or risk of a customer filing bankruptcy. A few options would be to request more time to make payments, request a revised payment structure or to rehabilitate delinquent accounts.
Account rehabilitation involves a series of on-time payments in exchange for deletions of late payments reported to the credit bureaus. You can also request forgiveness of a portion of the debt but make sure the creditor does not charge-off the remainder of the debt. Any agreement should always be done in writing.
6. Use 10% or less of available credit.
Even if you pay your balance off each month, credit card issuers report the total amount you charge each month to the credit bureaus. You can imagine how damaging it can be if you have a high limit credit card, utilize the entire available credit each month and that amount is reported to the credit bureaus. That would mean despite the fact you pay the entire balance each month, it appears as though you max out your credit card each month.
Using 10% or less of your available credit limit will help you obtain a higher credit score. Reducing your credit card balances to 10% or less of your credit limits will have an immediate positive effect on your credit scores.
If you want a real boost in credit scores, reduce your account balance to 7% or less of your available credit limit. FICO, the most widely used credit score, recently released a few tips of consumers with the highest credit scores. Consumers with 7% or less utilization of available credit had the highest credit scores.
Consumers should also avoid carrying a balance, even if it is small on every credit card in their wallet. For example, if you have 5 credit card accounts at least 3 of those cards should have a zero balance.
7. Create a good credit mix.
The best credit scores usually come from a variety of credit accounts including a mortgage loan, auto loan, major credit cards and a few store credit cards or a gas card. The types of credit you have have (credit mix) accounts for 10% of your over all credit score. When a bank or lender extends an installment loan such as a personal or auto loan it can do wonders for your credit score. More weight is given to installment loans when calculating a credit score.
For consumers with low credit scores it may be difficult to get an installment loan such as a personal loan. If this is the case try a secured personal loan product. Credit Unions often offer credit builder loans which report to the 3 major credit bureaus.
This does not mean you should make a major purchase such as an auto loan just to get a good credit mix. Use credit wisely and do not apply for new credit too frequently. Put 4-6 months between new applications for credit.
8. Re-establish your credit history.
Re-establish your credit history by opening new accounts and making on-time payments. You may have to start with a secured credit card or perhaps even a retail credit card. If you can afford the payments get a personal loan to help re-establish your credit history. Paying the new credit on time and responsibly managing the new credit will raise your credit scores in a matter of months.
9. Keep Old Accounts Open
Finally, keep old accounts open even if you no longer use them. Your credit score may be benefiting from the card’s long history. Closing older accounts could cause your credit history to appear shorter and could harm your credit score. It is better to keep the account open and not use it or just use it from time to time with very small purchases.