Everyone knows excellent credit makes everything in life easier. A score as high as 850 opens a lot of doors, making it easier to borrow money, move, get a job, and even access lower insurance premiums.
What’s not so obvious is how these people wind up with flawless scores. Well, it’s not handed down through the family, nor is it something money can buy; it’s the result of smart financial moves that build credit positive history.
Read these money management tips on building your credit history to find out what you can do to boost your finances.
1. Always Pay Your Bills on Time
Paying bills on time is crucial to earning top marks in your report. It may add positive payment history to your file while keeping negative history off your record.
Negative marks can take a dent out of your score. According to Equifax, even just one missed bill may remove as many as 110 points off your total.
The thing is, you may not be rewarded every time you pay your line of credit or phone bill on time. While some companies will report every payment — good and bad — others will only ever report payment history when things go wrong. Paying bills on time, every time, will help prevent these companies from sounding the alarm.
2. Use Less Than Your Available Limits
How often you tap into revolving accounts like a line of credit or credit card plays another important role in your score. Generally, the less of your limit you use, the better it looks on paper.
One rule of thumb says you should never spend more than 30 percent of your limits at a time. However, people with top FICO scores actually spend much less than this rule. They use no more than seven percent of their limit.
3. Have a Variety of Different Financial Products
It may seem counterintuitive but having more products in your name may actually work in your favor. On one condition: each account must be in good standing.
In other words, you must pay your bills on time and keep revolving accounts to a minimum.
As long as you have that in the bag, having a line of credit, student loan, mortgage, and car loan shows you’re able to handle multiple accounts responsibly — which looks good to future financial institutions; you can handle anything.
4. Be Steady: Don’t Open or Close Accounts Often
Scoring models reward borrowers who are consistent, especially when they’re consistently borrowing responsibly. As a result, people with top scores tend not to open or close their accounts often.
Opening new ones or closing old ones may reduce the overall “age” of your file only temporarily, but even this minor fluctuate in points matters to people with excellent credit. On average, people with scores of 850 have flawless histories dating back more than 25 years.
Earning a Top Score Takes Time
A perfect score doesn’t materialize overnight. It’s the result of longstanding habits built over time.
But by paying bills on time and limiting your line of credit use as you nurture a growing mix of products, you can add positive history to your file. If you commit to these habits over the long-term, you may see your habits turn into something positive.
