4 key factors of an excellent credit score
Here’s a breakdown of four factors that play into your credit score, and ways you can improve that number.
1. On-time payments
The best way to get your credit score over 800 comes down to paying your bills on time every month, even if it is making the minimum payment due. According to LendingTree’s analysis of 100,000 credit reports, 100% of borrowers with a credit score of 800 or higher paid their bills on time, every time.
Prompt payments are the single most important factor, making up roughly 35% of a credit score.
To get there, set up autopay or reminders so you’re never late, Schulz advised.
2. Amounts owed
From mortgages to car payments, having an exceptional score doesn’t mean zero debt but rather a proven track record of managing a mix of outstanding loans. In fact, consumers with the highest scores owe an average of $150,270, including mortgages, LendingTree found.
The total amount of credit and loans you’re using compared to your total credit limit, also known as your utilization rate, is the second most important aspect of a great credit score — accounting for about 30%.
As a general rule, it’s important to keep revolving debt below 30% of available credit to limit the effect that high balances can have. However, the average utilization ratio for those with credit scores of 800 or higher was just 6.1%, according to LendingTree.
“While the best way to improve it is to reduce your debt, you can change the other side of the equation, too, by asking for a higher credit limit,” Schulz said.
3. Credit history
Having a longer credit history also helps boost your score because it gives lenders a better look at your background when it comes to repayments.
The length of your credit history is the third most important factor in a credit score, making up about 15%.
Keeping accounts open and in good standing as well as limiting new credit card inquiries will work to your advantage. “Lenders want to see that you’ve been responsible for a long time,” Schulz said. “I always compare it to a kid borrowing the keys to the car.”
4. Types of accounts and credit activity
Having a diversified mix of accounts but also limiting the number of new accounts you open will further help improve your score, since each make up about 10% of your total.
“Your credit mix should involve more than just having multiple credit cards,” Schulz said. “The ideal credit mix is a blend of installment loans, such as auto loans, student loans and mortgages, with revolving credit, such as bank credit cards.”
“However, it’s very, very important to know that you shouldn’t take out a new loan just to help your credit mix,” he added. “Debt is a really serious thing and should only be taken on as needed.”
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