What if I told you that there is an exclusive club that less than 1 in 5 Americans are part of? In fact, you may be in this club already.
It’s commonly called the 800 Club, and it includes anyone with a credit score of 800 or greater.
Some membership benefits include:
- Access to additional credit
- Lower interest rates on personal and business loans
- Reduced premiums for auto and homeowner’s insurance
- Exclusive rewards programs
- A deep sense of personal satisfaction
Now if you’ve fallen short of that 800+ bracket, don’t panic. It’s still worth still time to build up your credit to reap the rewards of membership.
5 Keys On How To Obtain An Excellent Credit Score
Let’s go over 5 simple steps that can help you get closer to joining that illustrious 800 Club.
Keep Track of Your Credit Score Regularly
This may seem overly simplistic, but it’s worth emphasizing.
It’s unlikely you’ll improve your credit score without actively monitoring it. It’s also important to know which score to monitor.
The score that most lenders look at is the FICO score, which ranges from 300 to 850. While there is technically not one credit score, this is the score that is generally referred to when someone talks about your credit score.
You can request a free copy of your credit report from one of three major credit reporting companies: Equifax, Experian and TransUnion. Each offers one free report every 12 months.
To order your free credit report, go to www.annualcreditreport.com or call 1-877-322-8228.
Exercise Self-Control, Use Less Than You’re Offered
When you’re offered a new credit card, you may think it’s okay to spend as much as your credit limit will allow. After all, why would they offer you that high credit limit if they didn’t want you to use it?
As it turns out, maxing out your credit cards is more than just an inconvenience to your spending habits. It’s actually strongly frowned upon by creditors.
To understand this, consider a very important fact that affects your credit score: credit utilization
This is a fancy way of saying the amount of credit used relative to the total credit that’s available to you. For example, if you have a credit card with a $5,000 credit limit and you’ve used $500, you’ve only utilized 10% of your available credit.
Creditors like to see a lower utilization of credit than higher. The higher your credit utilization, the lower your credit score.
Keeping your credit usage as low as possible is the best policy for maintaining a high flying credit score. A good rule of thumb is not to exceed 20% of your credit limit. That means spending with that credit card with the $5,000 limit shouldn’t exceed $1,000.
But if you want to be a member of the 800 Club, you may want to limit your usage even further to no more than 10%.
This will not only keep you far from maxing out on your credit, but will also demonstrate to future creditors self-control in using your credit sparingly.
Pay on Time… and More than the Minimum
Another important factor that affects your credit score is the timeliness of your payments. It’s not enough to just make the payments. You have to make them on time.
However, making a late payment once or twice might not be your ruin. Payment history becomes a problem when lateness if regular, and future creditors don’t like that sort of thing.
If you’re in the habit of making late payments – 30 days or more after they’re due – you’re very likely damaging your credit score.
Be sure to make a habit of making payments on time, if not early. Ideally, it would be even better to pay off any outstanding credit card balances each month rather than making the minimum payments.
However, if the outstanding balance is too large to pay all at once, at least try to pay more than the minimum so you can to cut down your debt quicker.
Keep in mind that interest accumulates annually on top of the outstanding balance. So, the more you pay back, the less interest will be added onto your balance.
Keep Your Accounts Open After You Pay Them Off
You may think that closing out a paid off credit card would be a wise decision. Yet it turns out it’s best to keep those accounts open.
Why? Think back what we learned about credit utilization.
It not only works by lowering the amount of credit you use. It also works by keeping your available credit high.
That’s because closing out an account could lower your total available credit, which in turn raises the percentage of credit you’re using.
For example, let’s say you have two credit cards worth $5,000 ($10,000 in total) with a $2,000 outstanding balance on each. This reflects a credit utilization rate of 40%
Now, let’s say you pay off the balance on one of the cards, leaving you with just $2,000 outstanding on the other. The credit being used is now only 20% of your total available credit (still $10,000).
What would happen if you close out the paid off account? Your total available credit will drop down to just $5,000. That means your credit usage will, once again, be 40%.
Long story short, pay off your credit cards and keep the accounts open after you do.
Don’t Open Too Many New Accounts
If keeping open unused accounts can help improve your credit score, should you open up as many accounts as possible?
That may seem clever, but creditors won’t fall for it.
New credit impacts only 10% of your FICO score. While it won’t kill your credit score to open new lines of credit, opening too many accounts in a short period can potentially reduce your score.
This is because the average age of your credit accounts is factored into your score. The larger your average account age, the better. But opening new accounts can bring down that average, and thus your score.
If you must open new lines of credit, try to space them out as much as possible
Be Patient. Be Diligent.
Improving your credit score is not something that happens overnight, but it’s worth the determination and discipline it takes to get there.
Get started with these simple steps and you’ll be well on your way to becoming a card-carrying member of the 800 Club.