26% of adults admit to not paying their bills on time (National Foundation for Credit Counseling).
More than 20% of renters aged 18-24 overspent their income by $100 per month (Time).
VantageScore data pulled from February 2021 indicates an average credit score of 698 in the United States, with Mississippi having the lowest average score of 662 and Minnesota having the highest average score of 724.
A large spread of scores, coupled with the staggering statistics above, indicate a nationwide deficit in financial literacy. We’re not going to dive into why financial literacy is important in this blog — instead, we’re going to say something like, “Okay. My credit score really freaking sucks and I wasn’t taught all this stuff in school. What can I do now?”
So, let’s talk about the steps to achieving an 800+ credit score.
Is it a goal that is far, far out of reach or is it something tangible?
Believe it or not, this high credit score is tangible and the steps to getting there may be easier than you think.
Length of Credit History
The “length of credit history” refers to how long an account has been open for and although it isn’t the most important factor, it does affect your score. Your length of credit is calculated by taking the average of all your lines of credit. For example, if you opened a credit card 1 year ago, a second credit card 6 months ago, and a third credit card 3 months ago, your average length of credit history would be 7 months.
Generally, the longer your credit history, the better it is for your score. An account must be open for a minimum of 6 months for FICO to include it in your overall score computation. If you’re looking to increase your credit score, there are a few strategies that apply specifically to your length of credit history.
- Keeping old accounts open — to maximize your length of credit, keep old accounts open. If we go back to the previous example, if you were to close out the first credit card you opened a year ago, your average length of credit history would drop from 7 months to 4.5 months, negatively impacting your credit score.
If your oldest card has an expensive annual fee, then consider downgrading the card to one that does not have an annual fee.
Keeping an old account open does not mean that you have to routinely use it, especially if you have cards that yield better rewards. Instead, be conscious to at least charge something to it ever now and then to keep the account open.
- Be patient — if you’re just starting out, it’s likely that your length of credit history is low because you haven’t had a credit card for very long. If this is you, then your credit score will naturally increase over time, assuming you use credit cards responsibly.
High Credit Utilization
“Credit utilization” is a ratio of how much you’re charging to your cards each month compared to your total credit available. For example, if your credit line is $1,000 and you are charging $500 each month, then your credit utilization score is 50%. To maintain a healthy credit score, you do not want to carry a credit utilization percentage higher than 30%. Some gurus recommend keeping that percentage even lower — at like 10%!
Credit utilization accounts for up to 30% of your credit score, so it’s important to monitor your spending and be conscious of your credit utilization. If you’re looking to improve your score, there are specific strategies that pertain to credit utilization.
- Ask for a line of credit increase — if approved, then this creates more available credit, thereby driving your utilization rate down. If you are someone who tends to max out their credit cards, this is not the strategy for you.
- Open new lines of credit — If you have enough accounts open to where a new line of credit will not drastically impact your length of credit history, then consider opening a new card. This will increase your available credit, driving down the utilization rate. If you are someone who tends to max out their credit cards, this is not the strategy for you — unless you take the new card and stuff it away somewhere so that you can’t use it, then maybe.
Experian Boost is a newer service that connects to your bank account to leverage on-time utility payments, including Internet, cell phones, and other subscription services, like Netflix and Hulu. These on-time payments are reported to the credit bureaus and may positively impact your score. This service hasn’t been around for a long time, so there’s limited information on it, but it can be a viable option to pad your credit score — unless you don’t pay for these things on time. If you don’t pay for these things on time, start paying for them on time, then come back to Experian Boost after several months of on-time payments.
Remove late payments
Routinely reviewing your credit report helps hedge against fraud, but also enables you to negotiate with credit companies to remove some negative remarks (emphasis on some), like late payments. You can write a letter explaining why you paid late and assure them it won’t happen again. If they agree to forgive you, then they will adjust the report accordingly. If you choose this option, make sure to stay on top of your payments. If you are unable to pay the entire balance in full, then make the minimum payment. You will incur interest, but the incurred interest is better than a derogatory mark on your credit.
In the event that you’re unable to pay the balance in full or make the minimum payment, keep in mind that a 30 day late payment is better than a 60 day late payment — meaning, pay the overdue balance as soon as possible!
With conscious spending and following the tips outlined above, reaching the 800+ credit score is within reach. If you already have an 800+ credit score, what other steps did you take? Tell us in the comments!