February 21, 2014 – By Aaron Crowe
Joining the ranks of the credit elite with an 800+ credit score can do much more than provide bragging rights.
A higher credit score can help you qualify for better interest rates and other terms from lenders, saving you thousands of dollars on an auto loan, home mortgage, credit card interest, or any other type of financing. Investing the savings — which can add up to hundreds of thousands of dollars — can result in close to $1 million over a lifetime.
FICO scores range from 300 to 850. Getting a perfect credit score may be extremely difficult, but there’s really not much of a difference between getting a 780 or 800+ credit score. A score of 780 or more will get you the same interest rates as someone with a perfect score.
To get into the 800+ credit score club, you’ll have to follow some of the best credit habits for a long time. Here are five ways to get into the elite club:
Pay Your Bills on Time – All of Them
Paying your bills on time can improve your credit score and get you closer to an 800+ credit score. It’s common knowledge that not paying bills can hurt your credit score, but paying them late can eventually hurt also.
“I think a lot of people don’t really understand that there isn’t a bill that’s really too small,” says Thomas Nitzsche, a certified credit counselor and financial educator with ClearPoint Credit Counseling Solutions, and the owner of an 800+ credit score.
If a bill goes unpaid long enough and the debt is sold to a third-party collection agency, that will be reported to credit bureaus, Nitzsche says. But being late can lead to fourth-level reporting parties, such as online searches, that credit bureaus can become aware of.
From late utility bill payments to magazine subscriptions or even $10 medical co-pays that people don’t think are important enough to pay on time, all bills should be paid on time.
“Any bill I get is treated as a serious situation,” he says.
Payment history counts for 35% of a credit score, says Katie Ross, education and development manager for American Consumer Credit Counseling, a national financial education nonprofit group.
Don’t Hit Your Credit Limit
If you want to get into the 800+ credit score club, be sure that you don’t use your credit card up to its full limit. Use no more than one-third of your credit limit if you don’t want to hurt your credit score, Nitzsche says.
For example, if your credit card has a limit of $9,000, don’t have a balance of more than $3,000.
Ideally, credit card utilization should be 10% or less. Jennifer Martin, a business coach, says she has a credit score of around 825, and that she tries to keep her spending to no more than 10% of a credit card’s available credit.
Outstanding debt accounts for 30% of a credit score, Ross says.
“If you are overextended and close to your credit limit this indicates overextension and you need to work at getting your credit card balances well below the limits,” she says.
Only Spend What You Can Afford
Don’t use a credit card to live beyond your means, or to roll over the costs of everyday expenses to the next month, Nitzsche recommends. This will only lead to spiraling debt that will be difficult to get out of.
People with an 800+ credit score don’t apply for more credit than they can afford and don’t spend more than they earn.
While using a credit card for everyday expenses is OK if you can pay the credit card bill off in full each month while gaining awards points in the process, don’t let the accumulation of points convince you to spend more, Nitzsche says. And if you’re running to your credit card when your car, refrigerator, or something else breaks down, start an emergency fund to pay for such repairs.
Bill Balderaz, president of Fathom Healthcare, has an excellent credit score and attributes it to his family living below their means. “As our income rises, we keep our spending flat,” Balderaz says.
They also pay off all credit card bills each month, pay off their vehicle loans early, and have paid off their mortgage early to help get them to an 800+ credit score.
Their excellent credit score has allowed them to get the most preferred loan rate. After three houses and eight vehicles, Balderaz estimates they’ve saved tens of thousands of dollars on loans by getting the lowest loan rates.
Don’t Apply for Every Credit Card
Too many credit inquiries in a short period of time can hurt your credit score. This can be difficult to avoid during Christmas when it seems that every department store is offering you a discount for signing up for its credit card.
Applying for new credit card accounts can account for 10% of your credit score, which isn’t a huge number, but it can be enough to push you into the 800+ credit score club.
Holly Wolf, who with her husband has a credit score in the 800 range and is a chief marketing officer at Conestoga Bank, says she doesn’t open a lot of credit cards and often closes cards she may have opened to get a store discount.
“Honestly, this isn’t a lifestyle to which most folks aspire,” Wolf says. “They need to have a ‘nice car’ a ‘big house’ and all the accouterments of prosperity over having a high credit score. Living debt-free or with as little debt as possible has enabled us to save for retirement, get the best rates on loans, and be prepared for unexpected expenses when they arise.”
Have a Credit History
You not only want a good record of paying your bills and credit cards on time, but you also want a long history of doing so. The older your credit accounts are, the better your credit score will be. You want to have credit accounts that have been open for 10 years or more.
Length of credit history accounts for 15% of a credit score, and closing old accounts can affect your credit score, Ross says.
What an 800+ Credit Score Can Mean
The advantages of having an 800+ credit score are huge. Ilene Davis, a certified financial planner with an 800+ credit score, says she did a calculation on the mortgage payments for a $300,000 home loan for various FICO scores.
If the difference between payments for borrowers with the highest and lowest credit scores were invested at 6% a year, at the end of a 30-year mortgage the borrower with the highest credit score would have accumulated around $750,000. That’s a chunk of money worth improving your credit score for.
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