This is How I Received an 800 Credit Score

Your credit score is like a progress report. You know the one we tried to hide from our parents and forge the signature. Credit scores range from 300-850. The perks of having a good credit score includes lower interest rates on mortgages and monthly car payments, lower car insurance premiums, saving thousands on real estate transactions, Increases your chances of getting hired (that’s right, employers pull your credit report to see if you’re trustworthy and responsible.); approval for rental apartments, women, little or no down payment with utilities. Here are the five factors that determines your credit score.

PAYMENT HISTORY

Payment History Calculated

The most important and feasible factor on your credit makes up 35% of your total score. It only requires you to make your payments on time and never miss them. To calculate your payment history simply divide On Time Payments/Total Payments. Here’s a credit hack: make two payments a month on any debt you own and ALWAYS pay more than the minimum. You’ll accrue more interest if you carry a balance. For example, let’s say you owe $500 on your Chase credit card and a $25 minimum payment is due. Make a $50 payment each time you receive income but only if you can afford it. With that being said, use your credit regularly and simply pay your bills on time.

UTILIZATION RATIO

General Rule of Thumb 30% Credit Utilization Ratio

Credit utilization accounts for 30% of your score and it measures the balances you owe divided by your credit limits. Keep your balances at or below 30% to increase your score(See chart for example). Anything above will indicate to lenders that you’re overspending and have trouble repaying debt. For a way to spike up and improve your utilization ratio you can pay more than the minimum payment each month, ask for a higher credit limit, and pay your cards off or leave them active with a zero balance.

AGE OF CREDIT HISTORY

15% of your score will depend on your average credit history. Lenders want to see a long track record to determine how experience you are. For example, lets say you opened 2 credit cards and obtained an auto loan all in 2015. Your average credit history would be 5 years (2020-2015). Now let’s add two more credit cards in 2019. Now your average credit history will be 3 years. If you have no credit history, you can start with a secured card and get a cosigner or become an authorized signer on a credit card account. Secured cards will require you to provide a cash deposit and after a year depending on your progress creditors will boost the credit limits. Helpful hint: start as soon as you’re able to because time along with patience are key.

Lenders would like to see 7 years or more

Hint:

Consider setting up automatic monthly expenses on reward credit cards. That way you rack up rewards points for paying your own bills.

TOTAL ACCOUNTS

I didn’t understand this at first but why would we get rewarded by inviting more credit cards and more loans in our lives? Lenders want to see if you can manage multiple lines of credit. Installment loans such as Mortgages, auto loans, personal loans, and student loans. Interesting enough, banks will hand a 18 year old $100,000 without credit history for student loans but wouldn’t give $1000 to start a business. Revolving credit includes store cards, credit cards, and a HELOC. Total lines of credit accounts for 10% of your total score. Hint: closing accounts can decrease your score and at the right moment adding a new card can increase your credit availability.

TOTAL INQUIRIES

Lastly, total hard inquires accounts for 10% of your score. A hard inquiry or also known as a hard pull, occurs when you apply for new credit such as a credit card and a loan. Before you apply for any credit creditors request to look at your credit report to determined how risky you are. Hard inquires remains on your report for 2 years and only impacts your score for 1 year. Soft inquiries are not reported and doesn’t impact your score. TIP: DO NOT OPEN any credit cards or anything resulting in a hard inquiry before or during the entire home buying process.

HINT:

You can be an authorized user on someone’s credit card and do nothing to build credit. As long as the account holder has good credit.

Don’t Panic

Credit scores are just numbers that fluctuates. Credit Karma and Experian allows you to monitor estimates of your credit score free of charge. Equifax, Experian, and TransUnion are now offering free credit report weekly until April 2021 (it’s normally free once a year). Individuals can repair or increase their own credit free of charge with financial education and discipline. Having a great credit score can both generate money for you or return a lot of money back into your pockets. I’ll let you know when I get to 850.

Credit Score Ranges

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