Building a killer credit score requires diligence, dedication and good decisions. About a quarter of consumers with credit scores have figured out the right combination.
More than 50 million people are what credit score giant FICO considers “high achievers,” meaning they have scores 785 or higher. The credit scoring and analytics company uses a scale from 300 to 850. The higher the score, the better – a stellar credit score can help consumers land a lower interest rate on things like mortgages
and car loans.
FICO analysts identified some significant patterns among “high achievers” in 2012. These habits and best practices can go a long way toward helping consumers improve and maintain their credit profile for the long haul.
Let’s take a closer look at four of those key behaviors:
1. Don’t miss payments.
Late and missed payments are the easiest ways to tank your credit score. Payment history comprises 35 percent of your overall credit score, the single largest factor.
Creditors report your payment status each month to the nation’s three major credit bureaus: Experian, Equifax and TransUnion. The longer your late period (from 30 to 150 days), the bigger hit to your credit score. For example, a 30-day late payment could knock off 60 to 110 points, according to FICO.
Owing money doesn’t mean you’re a credit risk. It’s more a matter of what you owe in relation to your overall available credit. Scoring formulas like FICO try to determine how much debt is too much given the consumer’s complete credit profile.
There’s no magic number, but keeping balances at or below 20 percent of your credit limit
is a good start. That’s for either a single card or your cumulative balances and credit limit (for example, $200 on a $1,000 limit or $2,000 on $10,000 spread across multiple cards).
You don’t need to let your credit cards collect dust to have a great score. FICO’s high achievers have an average of four credit cards or loans with balances. The key is those balances represent just 7 percent of the consumer’s available revolving credit.
3. Build a long credit history.
Length of credit history makes up 15 percent of a consumer’s FICO score, and credit score rock stars have been at it for awhile. Their average credit account is 11 years old, and their oldest account was opened about 25 years ago.
Younger consumers don’t have the luxury of time, but it’s possible for newer users to have high credit scores. It’s important to keep credit accounts open, even if they’re not active. Those open trade lines mature your credit profile and can help boost your score.
4. Don’t go crazy for new credit.
Credit scoring agencies also evaluate how you utilize new forms of credit. High achievers take it easy when it comes to applying for new credit. Opening a bunch of credit accounts in a relatively short time frame can send your score south, since hard inquiries are initiated on your credit report when you apply for credit, which will knock off a few points.
People who accumulate a lot of credit in a short time tend to use it, and not always responsibly. It’s especially risky for consumers who lack a history of responsible credit usage
. The newest credit account for FICO’s credit stars is a little more than two years old, on average.
Move on After Mistakes
Credit score rock stars aren’t perfect consumers. Some have experienced a bankruptcy or been hit with a tax lien. Others have collections buried in their credit report.
What often sets them apart is their ability to move forward after making financial mistakes. Credit scores aren’t immutable, and having a high balance or a missed payment one month isn’t an insurmountable obstacle.
The key is patience, perseverance and a commitment to creating consistency.
“In a challenging economic period, the fact that we all have a chance to be high achievers is very good news,” said Anthony Sprauve, credit score advisor for myFICO.com, in a statement. “The lesson from these high achievers is that it’s never too late to rebuild and score high.”