August 17th, 2019 8:41 AM by Jackie A. Graves, President
Ever wonder how people achieve high credit scores? 750? 790?
800+? It’s not fantasy but there are those who are both dedicated to building a
pristine credit file or simply pay their bills on time and their scores
gradually rise. But getting these high numbers is no accident. There’s a method
to all this and if you’re wanting to get your scores in the stratosphere or
just want to improve your current credit standing, there is a roadmap for you
You must first understand how these three digit scores are
calculated. Scores range from as low as 300 to as high as 850. Although I’ve
never seen any score as low as 300 or as high as the perfect 850. Personally, I
think either is impossible to achieve. That said, those with excellent credit
didn’t get those scores by accident. Credit scores assign values to five
different credit patterns. Those are:
• Payment History
• Length of Credit History
• Types of Credit Used
• Credit Inquiries
Payment History is listed first because it has the greatest
impact on a score. This one category alone makes up 35% of your total score.
This makes sense because this is the one single measure of someone uses and
manages credit. A consumer credit report won’t list when account payments were
made but will list when a payment is made more than 30, 60 and 90 days past the
due date. As long as a credit account payment was made before 30 days, the
score won’t be negatively impacted, and scores will gradually improve. Note, if
someone makes a monthly payment say 20 days past the due date, while it won’t
impact the score the consumer will likely pay some sort of late payment fee to
the creditor. If a payment is made more than 30 days past the due date, scores
will begin to falter. More so if a payment is made more than 60 and then 90
days past the due date.
The second most important category is credit utilization. Some
may think that carrying a zero balance and leaving the account alone that way
is a good way to increase credit scores. That’s not the case at all. And if you
think about it, how would any algorithm calculate a credit score if there is no
activity, right? Utilization accounts for 30% of the total score. There should
also be a running balance instead of paying off the credit account to zero each
month. Most creditors report payments at different times so carrying a balance
is typically an automatic. However, scores do improve is the running balance is
approximately one-third of the total credit line.
How long someone has used credit also contributes to the total
score. If someone has used credit for a long time, that counts more toward a
score compared to someone brand new to the credit world. Even if someone with a
history and a credit newbie have perfect credit histories, the person who has
used credit responsibly over a longer period of time will be rewarded. This
category represents 15% of the total score.
Finally, using different types of credit accounts helps out. A
car loan, credit card and installment accounts are a good mix and accounts for
10% of the total score. Recent credit inquiries also make up the final 10% of
the score. Credit inquiries are those when an individual makes multiple
requests for new credit accounts within a relatively short period of time. One
of two recent inquiries won’t do much harm but more than that can.
How consumers achieve high credit scores means concentrating on
the first two, payment history and utilization. These two alone make up nearly
two-thirds of the total score. By paying attention to payment history and
keeping a running balance near the magic mark, scores can and will begin to
rise from any level.
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