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Having a good credit score has a lot to say about your character and willingness to pay your debts, it also determines if you’re trustworthy to get more loans. So it’s not just a “number”, it’s much more than that, and knowing how to get a perfect(At least 800) credit score would save you a lot of stress and money.
According to FICO, the average American has a FICO credit score of 706. But unless your credit score is exactly 706, this doesn’t tell you much about where you stand.
Only 20% of Americans have a perfect credit score which is pegged at 800 with 850 being the highest score.
For some people, credit scores mean absolutely nothing to them. Well, not until they need another loan, maybe an auto or mortgage loan. It’s then they regret their attitude towards lenders.
Because now a lot of lenders wouldn’t want to give them a loan, and those who might want to, do so with ridiculously high interest rates.
This article will help you understand all you need to about credit scores, and also teach you how to get 800 credit score.
Before you go on, you might want to take a look at our table of content for an overview of the article.
How To Get 800 Credits Score
If you ever don want to be a victim someday, then you must cultivate certain habits. You must learn how to get 800 credit score, and maintain it.
Below are some of the habits you must cultivate to be able to do this:
#1. Pay Your Bills On Time
Yes, you must endeavor to pay your bills and on time. Paying late bills might hurt you as bad as not paying them at all. So why take the risks, o your bills and this will get you closer to an 800 credit score.
Do not assume that any bill is too small, and therefore, can wait. Here’s what a certified credit counselor and financial educator with ClearPoint Credit Counseling Solutions, and the owner of an 800+ credit score Thomas Nitzsche had to say: “I think a lot of people don’t really understand that there isn’t a bill that’s really too small”
According to Nitzsche if a bill goes unpaid long enough and the debt is sold to a third-party collection agency, that will be reported to credit bureaus. But being late can lead to fourth-level reporting parties, such as online searches, that credit bureaus can become aware of.
From late utility bill payments to magazine subscriptions or even $10 medical co-pays that people don’t think are important enough to pay on time, all bills should be paid on time.
According to Katie Ross, Payment history counts for 35% of a credit score, education, and development manager for American Consumer Credit Counseling, a national financial education nonprofit group.
#2. Never Hit Your Credit Limit
This is going to be tough for some people, but you’ve got to do it regardless.
If you want to get into the 800+ credit score club, be sure that you don’t use your credit card up to its full limit. Use no more than one-third of your credit limit if you don’t want to hurt your credit score, Nitzsche says.
For example, if your credit card has a limit of $9,000, don’t have a balance of more than $3,000.
Ideally, credit card utilization should be 10% or less. Jennifer Martin, a business coach, says she has a credit score of around 825, and that she tries to keep her spending to no more than 10% of a credit card’s available credit.
According to Ross, outstanding debt accounts for 30% of a credit score.
“If you are overextended and close to your credit limit this indicates overextension and you need to work at getting your credit card balances well below the limits,” she says.
#3. Spend What You Can Afford
Stop living beyond your means because you’ve got a credit card lying around you. Do not roll over costs of everyday expenses to the next month, recommends Nitzsche. This will spiral your debt and make it even more difficult to come out of.
If you want to get an 800 credit score, then you must do these things. Because people with the kind of score you’re looking for do not apply for more credit than they can afford and don’t spend more than they earn.
Start an emergency fund so that you don’t have to pay with your credit card for every expenses that comes up along the way.
This will improve your credit score and give access to better loan rates.
#4. Don’t Apply For Credit Card
This might sound impossible to you, but it’s doable. Nothing good comes easy after all.
Too many credit inquiries in a short period of time can hurt your credit score.
This can be difficult to avoid during Christmas when it seems that every department store is offering you a discount for signing up for its credit card.
Applying for new credit card accounts for 10% of your credit score, which isn’t a huge number, but it can be enough to increase your credit score into the 800+ credit score club.
The need for nice and luxurious things drive people into taking credit cards they may not really need, and this hurts their credit score. Limit the number of your credit cards and you’d see how your credit score would increase.
#5. Have A credit History
You not only want a good record of paying your bills and credit cards on time, you also want a long history of doing so. The older your credit accounts are, the better your credit score will be. You want to have credit accounts that have been open for 10 years or more.
Length of credit history accounts for 15% of a credit score, and closing old accounts can affect your credit score, Ross says.
Having Listed some of the habits you must develop to increase your credit score, let’s now understand what credit score is all about.
What Is A Credit Score?
According to Wikipedia, A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bureaus.
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.
They also use credit scores to determine which customers are likely to bring in the most revenue. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system.
Your credit score is a number that represents the risk a lender takes when you borrow money. A FICO score is a well-known measure created by the Fair Isaac Corporation and used by credit agencies to indicate a borrower’s risk.
Another credit score is VantageScore, which was developed via a partnership among the top three credit reporting agencies: Equifax, TransUnion, and Experian.
Your credit score calculation represents your credit risk at a moment in time based on information found on your credit report. Both FICO and VantageScore range from 300 to 800, although the ways in which each parses its scores into different classifications vary.
However, in both cases the higher the credit score, the lower the risk of the lender.
Benefits Of A Good Credit Score
There are benefits of having a good credit score and it’s only when a bad credit denies you some of these benefits that you would appreciate a good credit score.
Here are some those benefits:
Remember that credit scores indicate your creditworthiness. Along with your other financial information, your credit score helps lenders predict whether you’ll repay the money you borrow. With a high credit score, lenders see you as a less risky borrower, increasing the chances that they will approve your credit.
Your interest rate on loans is highly dependent on your credit score. Having an 800 credit score will help you qualify for lower interest rates and save you thousands of dollars over the life of your loan.
You’ll see the biggest impact with larger loans that you repay over a longer period of time, such as mortgage and auto loans.
Notwithstanding credit score, everyone can avoid paying credit card interest by paying their credit card balance in full each month.
Moreso, an 800 credit score can help you qualify for credit cards that offer a 0% promotional rate on purchases and balance transfers.
Having one of these credit cards in your wallet gives you the flexibility to carry a credit card balance and pay it off over time while avoiding finance charges on your balance.
How To Calculate Credit Scores
The score is calculated by putting the information found in your credit report into a mathematical algorithm or formula that leads to a three-digit number ranging anywhere from 300 to 850. The lower the credit score, the higher your level of risk, and vice versa for a high credit score.
While there are numerous credit scoring systems, FICO and VantageScore remain the most prominent ones. To calculate an individual’s credit score, there are five major categories In which the points are drawn from and they are as follows:
The first is your payment history, and it makes up 35 percent of your score.
Second category accounts for 30 percent, and it’s your credit-to-debt ratio, or utilization. For example, if you have a credit card with a $9,000 limit, and you charged $6,000, your credit-to-debt ratio would be 50 percent, because you have used half of your available credit.
The third category is your credit history, which counts for 15 percent.
Meanwhile, the last two categories account for 10 percent apiece. One is the different types of credit that you have, and the last category is any new credit or credit inquiries.
Having a good credit score transcends mere numbers, it represent your trustworthiness when it comes to taking loans and assures lenders of the safety of their money.
To get, increase and maintain a good credit score, one must go through a seemingly difficult re-adjustment phase, but achieving or cultivating the right habits will not only make it easier in the future but will help give you a good credit score.
Having that will expose you to the numerous benefits available to people with a good credit score as we discussed earlier in this article.
So don’t wait any longer, start paying those bills and on time and practice all we’ve discussed here, and see how your credit score soars.