Can You Increase Your Credit Score to 850?
Via MintLife and Dawn Allcott
“Apparently, I’m a financial unicorn,” says Lance Cairns of Georgia,
Vermont. Cairns has worked his whole adult life to build a credit score
higher than 800, a feat achieved by only 5.7% of all Americans,
according to CreditKarma.com. That’s not exactly mythical, but is quite
rare.
Cairns has maintained excellent credit since he began building his
credit history in his early 20s. His 811 FICO score paid off when he
secured low-interest rates on his mortgage and credit cards. But can
someone who has accrued substantial revolving debt or made poor
financial decisions in the past achieve such a score? Experts – and
people who’ve done it – say yes.
Perks of the Credit Elite
Cairns was recently approved for a credit card with a 5.15% interest
rate – lower than that of many fixed-rate conventional mortgages. The
APR, or annual percentage rate, on his other major credit card is 7.25%.
Thanks to his high credit score, Cairns also saves money on his car
insurance.
Julie White, another member of the credit elite (her score is 813),
enjoys multiple money-saving perks, as well as bragging rights. “My
husband’s score is 793 and I lord those 20 points over him,” she jokes.
To start with, White recently obtained a 15-year mortgage with a 4.5%
interest rate. “We also got lower fees on some closing costs associated
with the bank, and lower homeowners’ insurance costs. Apparently,
people with excellent credit are less likely to burn the house down,”
she quips.
From 600 to 800+
Unlike Cairns, who has always had impeccable credit, White had a
credit score in the low 600s in her early 20s. “When I was making less
money, it was harder. I regularly carried balances until about 10 years
ago,” she says.
Since debt utilization makes up 30 percent of your credit score – the
second biggest factor after timely payments – carrying a balance can
keep you out of the credit-elite category.
Once White was able to pay off those balances, her credit score
spiked. She keeps it high by using Outlook reminders and online
bill-paying so she never misses a payment. “Most of our household bills
go on a cash-rewards credit card I pay off each month. I write only a
few checks. This reduces the chance of a slipup,” she says.
Randy Mitchelson, owner of the Daily Dollar Newsletter personal
finance blog, says White’s experience isn’t unusual. “Time heals all
credit issues,” he says. “Assuming the consumer has perfect credit
behavior for a 24-month period following bad credit behavior, he can
earn a dramatically different score.”
Taking Your Credit from Excellent to Elite
Once you hit the 750 mark, it takes careful credit management to make
the jump to 850. Some experts say there’s no real difference in 50
points when you reach the top of the pack, but others say that in
today’s lending environment, every point helps. “A FICO score of 750 is
great, but it’s no longer a guarantee for the best rates available,”
says Wayne Sanford of YourCreditSpecialist.com.
Sanford points to the all-important debt-to-available-credit ratio as
one way to give your score a nudge. “If you have a perfect payment
history for six to 12 months, you may be able to get a credit line
increase just by asking,” he says. That way, a credit inquiry won’t
negatively affect your score, but you can lower your debt-to-credit
ratio to gain points. “Credit unions and smaller banks are more likely
to do this based on your credit history alone,” Sanford advises.
Another way to raise your score is to develop a variety of credit – a
mixture of revolving and installment loans. “A good ratio is two
revolving loans for every installment,” Sanford says. “So if you have a
mortgage and a car loan, you should have four credit cards.”
Of course, you shouldn’t buy a new car just to improve your credit
score. Sanford suggests adding your name to a spouse’s existing
installment loan – another move you can make without a credit inquiry.
Credit inquiries account for 10 percent of your FICO score, so it’s a
good idea to limit them if you intend to join the credit elite. “Retail
store cards we apply for to get a discount, cell phone plans, auto
loans, apartment rentals… these all count against our FICO score,” says
Denise Winston, a money and time-saving expert. “I limit mine to no more
than two per year.”
In general, the rules to join the credit elite are simple: make
timely payments, keep your credit utilization up to about 25 to 35
percent of your available credit, and minimize credit inquiries.
In addition to the cost savings available to members of the credit
elite, there’s another key benefit: peace of mind. The higher your
score, the easier it is to stay within the “excellent” category should
you make a small mistake. Mitchelson explains: “One late payment may
bring you from 810 to 760 and keep you in the ‘A’ credit range, whereas a
720 person with a late payment will fall into the 600s and out of the
‘A’ range,” he says.
For more tips on improving your credit score, check out MintLife’s
Credit Score Primer.
Can You Increase Your Credit Score to 850 is provided by Experian.com