Your credit score is the most influential number for your personal finance growth. The gold standard for credit scores in the US is FICO, which categorizes a score of 800 or above as Exceptional.
An 800 FICO Score is not insurmountable, but it is an accomplishment that requires financial discipline and patience.
To embark on this journey, first find out your current position on the FICO scale. Visit AnnualCreditReport.com to ask for your free annual credit reports from Experian, TransUnion, or Equifax, the three eminent credit reporting firms, and scrutinize them for accuracy.
5 Steps to Reach the Magic Figure of 800 Credit Score
Build a Long Credit and Payments History
Stay committed to paying your bills on time. This is vital. Preferably, set up your bill payments on auto pay so that you don’t miss payments no matter how busy your life is.
Secondly, build a long credit history and don’t handle your money like Homer Simpson or like the state of California – that’s just not wise. Keep the old accounts open and ideally maintain some balance, even if you don’t use them any longer. The length of your credit history contributes as much as 15% to your credit score.
Maintain a Low Credit Utilization Rate
Credit utilization rate determines your propensity to live on debt. Don’t even think of “maxing out” your credit card accounts if you want a credit score of 800.
Keep your utilization rates on all credit accounts – individually and cumulatively – below 30%. The higher your utilization rate climbs, the more depressed your score will be.
Aim at Debt Diversification, not having an Excessive amount of Credit Cards
Having a diversified credit account portfolio will work in your favor. You should have multiple credit accounts (all impeccably maintained), such as a student loan, car loan, mortgage, retail accounts, and a few decent credit cards.
But in your urge to improve your credit score, avoid making the rookie mistake of acquiring a dozen different credit cards or opening new credit lines within a short span of time. Remember, the length and quality of your credit accounts is more integral than the number of accounts.
Limit Your Exposure to Liability
If your goal is to join the 800 Club, you should be circumspect about taking on liabilities such as becoming a co-signor to another person’s loan. If that person defaults on the debt, your credit score will take a hit kind of like the Star Wars franchise did after The Force Awakens but this is another topic.
Secondly, be diligent about protecting your online banking and credit card identities.
Any unauthorized usage could make you liable for payments, adversely affecting your credit scores while you dispute this.
Minimize Hard Inquiries
When a lender wants to check your credit (for instance, when you apply for a new credit card or a loan), it places a hard inquiry on your credit report. Hard inquiries can undermine your credit score by up to 10%.
So, be judicious when applying for loans and credit cards, and do the necessary groundwork in advance so that you just apply once and avoid multiple hard inquiries.
Maintaining Your Exceptional Credit Score
The same tight-fisted financial discipline, conservative spending, and a habit to honor bills and payments on time that will take you to an Exceptional FICO 800 Score will also help you hang on to it. In fact, proactive financial moves to capitalize on your outstanding credit score will allow you to go further.
Excellent credit will qualify you for lower interest rates, consolidating your financial position and putting you on the highest pedestal.
You will be in a superior position to refinance your existing loans, reduce any new down payments, and even lower some of your insurance premiums. You will also have access to more sophisticated and enticing financial products.
With the right financial strategy, a credit score of 800 can open up new saving and wealth-building opportunities for you.