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- Your credit score is determined by many factors, some of which are more important than others.
- No specific credit score is required – Most lenders will offer favorable terms and rates to those with a credit score of 670 or higher.
- Improving your credit score takes time, patience, and responsible credit use.
As someone who writes about personal finance, you might think I’d always be in great shape financially. But like most young people, I worked low-paying jobs and was burdened with student loan debt. Shortly after we got married, my wife lost her well-paying job and was out of work for over a year while our credit card debt grew.
Today, I’ve been lucky enough to have a credit score in the 800s for the better part of a decade. And I didn’t stumble into a huge inheritance or find a stable six-figure job. Our path out of bad credit began with a rocky financial situation, and it was a slow and careful one.
Why your credit score is important.
For most adults, whether we like it or not, our credit scores determine many of the financial options available to us. And a low credit score can subject you to high interest rates and challenging credit terms, putting you on a spiral of financial mistakes.
Those with a “good” FICO credit score of 670 or higher will have an easier time opening financial doors. We can offer better loan terms, rates and more competitive offers on everything from mortgages and auto loans to credit card balance transfers.
It’s important to note that a credit score of 800+ or excellent is not necessary to get a loan or a good interest rate. Most lenders will offer favorable terms to people with a credit score of 670 or higher.
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How do I keep a credit score above 800?
You might be surprised to learn that the average FICO credit score in the United States is 718. If you want to raise your FICO score to the “excellent” category (and keep it there), here are the steps I’ve taken to manage my credit over the past decade.
There’s no way around this – you need a budget
Start by knowing where your money is going so you don’t miss a payment. Once you identify your expenses, you can then figure out ways to stay in the bank and meet your financial obligations.
For me, it helps to remember that budgeting works two ways: saving more money or making more money. If your bottom line isn’t balanced, it’s time to address both ends, cut costs, and consider a side hustle.
Maximize your savings with a set-it-and-forget-it approach. Automatically save a portion of your paycheck or set up automatic monthly transfers to a high-yield savings account.
Use credit carefully
My credit score will experience small fluctuations, mostly due to using a credit card or any new loans. These changes are usually small and very short-lived.
But be aware that if you significantly increase your debt while canceling your credit cards, your credit utilization ratio could change dramatically. That’s why we always recommend keeping several credit cards active, even if you don’t use them often.
Create a plan to get out of debt
Most people have some debt, but a lot of high-interest debt can snowball and put your finances in a difficult position. Sit down and evaluate what debt you have, what the current interest rate is, and what you can do to pay it off as quickly as possible.
In my case, while my credit slowly recovered, we did some account transfers and consolidated our debt at a lower interest rate. Then, we used all the extra money to slowly pay off our credit card debt over a few years.
Never miss a payment
If someone asked me what the single key to a successful FICO score was, I would say it was probably our payment history. We made some other mistakes, but my husband and I have never missed a scheduled payment in the past 10 years.
How do I stay on top of our accounts? I pay all my bills at the same time every month: utilities, mortgage, subscriptions, and credit card bills. To keep things simple, I usually set up electronic transfers, use the auto-pay option, and use any random payment date.
Try not to become “poor”.
It’s a tough call in today’s housing market, but we make it a priority to not be a “mortgage slave.” “Mortgage slavery” usually refers to the 30% rule, which means your mortgage or rent payment should not exceed 30% of your gross monthly income.
In our case, that meant living in a “first” home in a smaller neighborhood than we’d like. We had to wait for the housing market to recover and our equity to stabilize before we could consider moving.
If you live in an area where you can’t currently cut housing costs, consider other areas where you can cut costs and save money.
Avoid multiple car loans
Again, this isn’t always possible, but one of our secrets to financial stability is not to juggle two car loans at once. Yes, that means you might spend a few years driving a reliable, old car until the wheels fall off.
In our case, my wife daily drove an 80s Pontiac Bonneville with worn-out seats for about a decade. After paying off the family SUV, we replaced the old sedan with an electric car.
Monitor your credit closely
Like most Americans, we’ve had our data breached multiple times over the past few years. Having accounts with all three credit bureaus and setting up alerts to catch suspicious activity early can help you avoid fraudulent purchases.
After I fell for a job scam and lost my Social Security number, I froze my credit and multiple accounts for several months to keep an eye on any activity. As Experian explains, while credit crunches can be a problem, they won’t affect your credit score.
What Factors Determine Your Credit Score?
Do you have a bad number to your name? He doesn’t judge. You may not even understand why you ended up with a “bad” credit score. The following factors will point you to an easier way to determine your FICO credit score and repair your own credit score.
Pay on time
The highest percentage of your score (35%) is based on information about your payment history. Making on-time monthly payments is one of the best ways to improve your credit score.
Your debt load
How much you owe matters, too. From mortgages to home loans to credit card balances, about 30% of your credit score is based on your total debt-to-income ratio — also known as your credit utilization ratio.
The length of your credit history
It’s not the biggest factor affecting your credit score (15%), and there aren’t many quick things you can do to improve your credit history – it’s just a matter of time. Factors that affect your credit history include the average age of your accounts, the age of old and new accounts, and when you last used certain accounts.
Credit structure
FICO evaluates how you handle different types of credit, so having a mix of accounts like credit cards, payday loans, and loans can help improve your credit score, but only if you pay them all off on time. Your credit mix accounts for 10% and is one of the biggest factors in your FICO score.
New Credit
Applying for a new credit card may temporarily lower your credit score, but applying for multiple lines of credit in a short period of time may mean needing more credit to pay for expenses you can’t afford. It only accounts for 10% of your FICO score, but for people without a long credit history, it can make a big difference.
Maintaining a credit score above 800 is possible.
While getting an exceptional credit score may seem out of reach due to your current financial situation, it doesn’t have to be. By organizing your budget, staying on top of your bills, and making smart financial decisions for yourself and your family, you can slowly but steadily build your credit.
The best part is, once you start seeing your credit score gradually move upward, each step toward financial stability will become a little easier. A good credit score opens the door to opportunities to make better choices and build a financial future that doesn’t have to be debt-free.
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