Do you have excellent credit, with a credit score between 801 and 850? If not, it may help to review the common habits of those who do.
A credit score is a single number based on your credit report, which is a history of all your borrowing activities. A higher credit score shows lower risk to creditors, allowing them to offer lower interest rates.
LendingTree recently analyzed credit reports of high-credit-score Americans to look for common threads in their credit profiles. As expected, they closely track the major factors that go into calculating a credit score.
On-time payments are the most important factor affecting credit scores. The average American has around six late payments in their credit history, but everyone with credit scores above 800 in the LendingTree analysis had a 100% on-time payment rate. That's true across all generations and all demographics.
Credit utilization is the next most important factor. It's good to have high credit limits (meaning you're a good risk to pay back higher debts), but to use as little of that credit as possible.
People with scores over 800 use only 5.3% of their available revolving credit on average and have credit limits near $71,000. Compare that to the fifty largest U.S. metropolitan areas, where average credit limits are estimated at $15,000 to $20,000 and credit utilizations average between 24% and 35%. "Avoid maxing out any of your accounts or blowing your utilization rate past a 20% or so threshold," warns Steven Millstein, a credit repair consultant at CreditRepairExpert.org. "High utilization is going to handicap you every single time and is something that you should avoid at all costs."
How do high-credit-score Americans get high credit limits? They get multiple lines of credit, limit charges on them but use them regularly, pay off all accounts on time, and keep their accounts open for years. On average, the over-800 club has 8.9 open credit accounts (with the average age of account at 260 months) and made almost two credit inquiries over the last two years.
What doesn't factor into your credit score? Your income isn't considered at all. Total debt isn't an overwhelming factor, either. People with credit scores over 800 owe an average $126,306 in mortgage debt, $11,162 in auto loans, $4,261 in student loan debt, $3,685 in credit card debt, and $2,579 in personal loan debt.
Data from the credit reporting agency Experian backs up the LendingTree findings. Experian studied people with a perfect 850 credit score and found that over 38% of them had annual incomes below $75,000 – with 8.1% averaging $25,000 or less. The perfect credit score group had 6.4 credit cards compared to the 3.8 national average and owed $3,025 on those cards compared to the $6,445 national average.
Cautions LendingTree Senior Research Analyst Kali McFadden, "People shouldn't get too hung up on hitting a score of over 800, especially if they already have scores in the high 700s. These high scores are the byproduct of basic financial prudence - namely, spending and borrowing within one's means."
If you want to join the over-800 club, start by finding out how far away you are from your goal. Check your credit score and credit report to see what is keeping your score down. Is it missed payments, credit utilization, or reporting errors?
Address any errors that you find immediately, especially any false charges or accounts that show signs of identity theft. After that, you need a realistic budget and fiscal discipline to push your credit score past 800. Let MoneyTips protect your credit and your identity with a free trial.
You can't erase missed payments, but you can make all payments on time from this point forward. Pay down credit card debts and get your credit utilization as low as possible – 5% or less if you can. Open any new accounts after you've improved your finances and qualify for lower interest rates and higher credit limits, and then make small charges on all credit accounts to keep credit utilization low.
Like most good things in life, a high credit score isn't easy. It requires hard work and focus. Are you ready to meet that challenge?
You can check your credit score and read your credit report for free within minutes by joining MoneyTips.