Keys to improving your credit score other than paying on time:
• Keep debt-to-income level low
• Limit use of available credit to 30% per card, 10% across all cards
• Spread charges across several cards vs. than using one or two cards heavily
• Ask your creditor for a higher credit limit without increasing spending amount or % overall
• Don’t apply for many credit cards over a short period of time
• Keep old cards active even if you don’t use them as it creates credit tenure as it’s very important to your score
• Stay away from store cards as they will lower the average age of your accounts (unless you’re getting a really good discount on expensive home furniture purchases)
• Mix it up – it’s good for your score to have different types of debt (mortgage, car, and other installment loans)
Approximately 200 million American consumers have FICO credit scores, with barely 3 million or 1.4% having perfect 850 scores, according to Fair Isaac Corp, the company that provides lenders a scoring model to predict if you’ll pay back a loan.
Americans are approaching a ‘peak credit score’ possibly. The average national FICO score is now 700, just above the previous peak in October 2006.
A big reason for this is that American consumer finances are generally in good shape. While the overall level of household debt has returned to its pre-recession peak, it remains low when compared with income, says Mark Zandi, chief economist at Moody’s Analytics. Debt service (principal and interest payments as a percent of income) is at an all-time low, helped by mortgage refinancing over the past decade.
As Jason Steele, credit card expert, points out to get the best mortgage rate, don’t apply for new credit in the 3 months before seeking a mortgage as banks are sensitive to fresh credit applications. Also, pay off card charges prior to the statement close date since that’s what’s reported to credit bureaus, which is treated as long-term debt.
And for those that want to make it to the ‘850 club,’ Stelle advises that credit scores fluctuate and an obsession to stay there is similar to buying a stout AWD SUV with a lift-kit and not using it off-road, too worried about getting it dirty and knicked up – “you’re kind of missing the point.” Steele adds, “The point is for you to use your great credit to apply for really high-end premium cards with excellent sign-up bonuses, and get the lowest possible rate for other loans.”
Lead story, “How More Americans Are Getting a Perfect Credit Score” by Suzanne Woolley, Bloomberg News, August 14, 2017
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