As of late 2018, the average FICO credit score in the US was 704, a significant improvement over the 686 average score from October 2009. While a 704 is solidly in the “good” range, most people would rather have an “excellent” credit score. If you can get a 786 credit score, you have a decent amount of power as a consumer. Getting rejected for a new loan or credit card isn’t likely. Your interest rates are also usually very competitive. If you are wondering how you can get your credit score up to 786 or higher, here are some tips.
Pay Your Bills on Time, Every Time
Your payment history is a critical factor in your credit score calculation. A new 30-day delinquency can cause your score to fall by as much as 90- to 110-points. This depends on your current credit score and payment history.
The credit bureaus consider your past payment performance a good indicator of how likely you are to pay your bills in the future. By paying all of your bills on time, you build up a positive payment history.
While late and missed payments can remain on your credit report for a full seven years. They have a smaller impact on your score as they get older. This gives you a chance to improve your score over time by remaining current. Also, by avoiding new delinquencies that can drag your score down further. But be sure to pay your bills on time. Whether it’s an expensive rent payment for a place in a big city like Minneapolis, or just a small cable bill, on time payments are the key!
Keep Your Revolving Balances Low
Credit cards and lines of credit are revolving debt accounts. As you pay down balances, you have the ability to use the account or card to make additional purchases, pushing the balance back up to the preset maximum.
When your revolving accounts are maxed out or close to maxed out, your credit score suffers. The credit bureaus calculate a credit utilization score – a percentage that shows how much revolving credit you use in comparison to the total amount you could spend if you maxed everything out – and the higher that percentage, the more it harms your credit score.
If you pay down your credit cards but leave the accounts open with their current limits, your credit score will improve. While paying them off in full each month is ideal, allowing you to avoid interest charges, getting it under 30 percent can do wonders for your score as well.
For example, if you have a credit card with a $5,000 limit, make sure to never carry a balance at or above $1,500. That way, you stay under 30 percent utilization.
Reducing your installment debt (personal, auto, student, or home loans) can also positively impact your credit score. However, getting your credit utilization ratio under control usually improves your credit score faster, so starting there is typically the more effective approach.
Only Open New Credit Accounts If Absolutely Necessary
When you open a new credit account, it can negatively impact your credit score in a few ways. First, it usually requires a “hard pull” on your credit report – a term describing when a lender checks your credit to see if you qualify for an account. While a single hard pull doesn’t tend to have a big impact on your score, adding a new one every few months can be incredibly damaging.
Second, a new account decreases the average age of your accounts. This average – at times referred to as a credit age – factors into your score. When your credit age is older, it shows you’ve maintained accounts for a longer time, suggesting you are responsible with your accounts as the lender has allowed you to remain a customer.
Finally, having new accounts may tempt you to overspend or accumulate unnecessary debt. While opening a new credit card may seem beneficial, as it can lower your credit utilization ratio if you don’t use it or pay it off in full each month, it can be harmful if you end up maxing it out.
Don’t Close Your Unused Credit Card Accounts
If you don’t use a particular credit card, closing it may seem like a wise decision. However, it isn’t always a smart strategy.
When you close any revolving debt account, you impact your credit utilization ratio. If that unused card has a $0 balance and the cards you are keeping have balances, your ratio is going to go up. Ultimately, that hurts your score.
Additionally, if that unused credit card is one of your older accounts, it also makes your credit age younger. How much it shifts depends on the age of your other accounts, but it can drag down your credit score.
Review Your Credit Reports and Dispute Inaccuracies
Each year, you should review your credit report from all three major bureaus. Since you can get a copy from each one for free every year at AnnualCreditReport.com, you don’t have to pay to get your reports.
Once you have them in front of you, review the report to make sure it is accurate. Incorrect information might drag your score down. If you find something wrong, like a misreported delinquency or accounts that aren’t yours, then you need to dispute the information.
It comes as a surprise to some that you have the ability to remove negative credit issues from your credit report. If you have been subject to identity theft or involved in late payments, bankruptcy, repossessions, or foreclosures from over 7 years ago, you may be able to remove these credit dings from your history to improve your score. Should you find any information in your credit report that is simply wrong, you also have the ability to contest the issue using the Fair Credit Reporting Act (FRCA)
Each credit bureau has its own dispute process, so you will need to handle them separately. However, you can start the process online or even from a mobile device, which is convenient. If you would rather talk to someone, all of the bureaus have a support number for disputes. Mail-in options are also available, but that may be the slowest approach.
By following the tips above, you can improve your credit score. While it may take time, being responsible means you could get a 786 credit score, or potentially a higher one.
Do you have a 786 credit score or higher? Tell us how you did it in the comments below. Until April of 2021, the three major credit bureaus are allowing you to check your credit score on a weekly basis (rather than yearly). This is a great opportunity for you to see how making healthy financial decisions can quickly raise your credit score — and in real-time.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.