Learning to build and maintain a good credit score is vital in a person's financial life. A credit score is a three-digit number that lenders base on when deciding to grant a loan or credit card. It reveals how likely they can repay them on time.
If a person receives a high credit score, they can likely be more eligible for credit cards and loans at the most advantageous terms. However, if their credit history is not as good, they might have some trouble qualifying for credit.
For those seeking to build and maintain an exceptional credit score, keep on reading! This article will discuss the benefits of an 800 credit score, how a credit score is computed, several tips to build and maintain an 800 credit score, and how long it might take to achieve.
What Is a Credit Score?
As discussed earlier, a credit score is a number that represents a person's credit risk based on their credit data.
One of the widely used credit scores is the Fair, Isaac, and Company (FICO) score, which is determined with five primary classifications of credit data from credit reports.
Listed below are the five factors considered in calculating the credit score and the percentage of the score they account for.
- Payment History (35%): Accounts for whether bills have been paid on time.
- Amounts Owed (30%): Determines how many loans and how much credit is being used.
- Length of Credit History (15%): Considers how long a person has credit.
- Credit Mix (10%): Based on the types of credit such as credit cards, a mortgage, or an auto loan.
- New Credit (10%): Considers the rate of new account openings and credit inquiries.
FICO scores usually range from 300 to 850, as follows:
- 800 to 850: Exceptional
- 740 to 799: Very Good
- 670 to 739: Good
- 580 to 669: Fair
- 300 to 579: Very Poor
What Are the Benefits of Having an 800 Credit Score?
By achieving an 800 credit score, a person can gain several financial benefits.
Here are some of the advantages of building and maintaining an exceptional credit score:
1. Credit applications have a higher chance of being approved
As we mentioned earlier, a credit score indicates an individual's capacity to pay back the money that they borrow.
With an excellent credit score, they will be more likely to be eligible for a loan or credit line since lenders view us as less risky.
2. Eligibility for higher credit limits and lower interest rates
Achieving a credit score of 800 or more gives lenders the impression that someone is more likely to repay debts; thus, lenders would be more willing to offer better deals.
This rings true whether they apply for a car loan, a mortgage, or seek a better credit card interest rate.
If they already have an exceptional credit score, it's typical to be presented with better terms on an auto loan or a mortgage.
For credit cards, there might be a need to apply for a better deal, especially if it has been existing for some time.
Once a person reaches a credit score of 800, they may need to contact current credit issuers to update them regarding the credit score to increase the credit line or lower the interest rate.
3. Qualifying for better credit cards that offer better rewards
Even though using the same credit card for a long time can be beneficial for a person when it comes to the length of their credit history, they could also be left out on valuable perks.
Accomplishing a credit score of over 800 can make a person eligible for several benefits, such as:
- A quicker rate of earning cashback and airline miles
- Access to airport lounges
- Complimentary breakfast in hotels
How Are Credit Scores Computed?
Lenders and other credit institutions don't have a uniform way of computing credit scores.
Credit scores can be determined by applying a mathematical algorithm to the information from one of the three credit reports provided annually by three credit rating agencies:
- Equifax
- Experian
- TransUnion
There's no need to be worried about having several credit scores because the elements that make the score higher or lower are generally similar. The factors taken into account by most scoring models are the following:
- A person's payment history on credit cards and loans
- How much revolving credit they typically use
- How long their accounts have been active
- The types of accounts they have
- How frequently they apply for new credit
How Long Will It Take to Improve a Credit Score?
Bad credit scores can't be fixed overnight.
Suppose a person has any negative information on their credit reports, like too many inquiries and late payments. In that case, they should keep working on paying their bills on time.
The reason behind negative changes in a person's credit history can affect how long it takes to rebuild their credit score. Adverse changes in their credit score are usually caused by adding a negative aspect to the credit reports.
Here are elements that continue to have an impact on credit scores until they reach a particular age:
- Hard Inquiries are on record in a credit report for two years
- Delinquencies remain for seven years
- Most public record items are recorded in a credit report for seven years, except for some bankruptcies, which may remain for 10 years
6 Tips To Build and Maintain an 800 Credit Score
To achieve a better credit score, a person must first determine their current score by checking online. By getting their scores, they can also access information about which issues impact their rating.
By knowing the factors with the most impact on their score, a person can make the necessary adjustments to improve their scores.
It's important to note that there are particular credit score factors that are usually more crucial than most.
Credit utilization ratios and payment history can represent up to 70% of a credit score and are considered one of the most essential factors in several critical credit scoring models.
Here are some tips that will help in building and maintaining an exceptional credit score over time.
1. Pay Your Bills On Time
Lenders review a person's credit report and request their credit score to check how reliably they settle their bills. This is because the history of their payment performance is usually a good indicator of how well they will perform in the future.
This credit score factor can be improved by ensuring that all bills are paid at the agreed time every month. Late payments or paying less than the billed amount can harm credit scores.
All bills must be paid on time, which may include:
- Credit card bills
- Loans (student loans, auto loans, etc.)
- Rent
- Utilities
- Phone bills
One of the best practices is to take advantage of available tools and resources that can help keep track of bills, like calendar reminders and automatic payments, to make sure that all monthly payments are made on time.
If there are overdue bills, they must be settled as soon as possible. Missing or delayed payments may appear as negative information on a credit report for seven years. However, their effect on a credit score lessens over time.
2. Keep Credit Card Balances Low and Pay Off Debt
Another significant factor in credit score calculations is the credit utilization ratio. This can be calculated by adding up all the credit card balances at any given time and dividing the result by the total credit limit.
For instance, if a person is usually charged around $3,000 monthly, and the total credit limit among all their cards is $10,000, the utilization ratio would be 33%.
To work out the average utilization ratio, examine all credit card statements from the past 12 months. Compute the total of the statement balances for each month, then divide by 12 to find how much credit is used monthly on average.
Keeping credit card balances below 30% of the limit is recommended to improve the credit score. Having a low credit utilization ratio leaves an impression to lenders that a person likely knows how to manage their credit well.
By paying off debt and maintaining low credit card balances, the credit utilization ratio can be improved.
3. Keep Unused Credit Cards Open
Closing an unused credit card may lead to an increase in the credit utilization ratio; thus, keeping them is a smart move (as long as they're not adding costs with annual fees).
Having the same credit balance but having fewer open accounts may negatively affect credit scores.
4. Only Open New Credit Accounts When Needed
Opening new credit accounts to have a better credit mix isn't guaranteed to improve a credit score.
Having unneeded credit may even negatively impact a credit score in different ways, such as encouraging a person to overspend.
5. Avoid Making Too Many Credit Inquiries
Credit reports record a hard inquiry for every application that requires a credit check. About 10% of a credit score represents hard inquiries.
Even though it may seem like making hard inquiries doesn't have much impact, it can still make the difference between a score of 800 and a 780.
As such, it's better to be fully prepared when applying to apply for a credit card or loan to get it done in one shot and avoid making multiple inquiries.
6. Act Quickly on Any Errors in a Credit Report
Any errors on credit reports can negatively influence credit scores. As such, it is crucial to verify that the accounts recorded in the reports are correct.
If a credit report has any inaccuracies, report the error and have it corrected immediately. Regularly monitoring credit can help spot any mistakes earlier to avoid hurting the credit score.
Take-away Points
In a nutshell, a person's credit score can influence their ability to get credit and better terms from lenders. It's crucial to keep track and take steps to improve a credit score because it can offer so many financial benefits.
With an exceptional credit score, a person applying for credit applications has a higher chance of being approved; they can be eligible for higher credit limits and lower interest rates, and they can qualify for better credit cards that offer better rewards. To gain these benefits, they must follow the tips listed in this article for building and maintaining an 800 credit score.
Achieving an 800 credit score may be a challenge and may take a long time. Just focus on the things that need to be done, and slowly but surely, the credit score will improve through time.
With a better understanding of credit scores, the benefits that can be gained from improving them, and the steps on how to achieve that, you can start to put these strategies into action.
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