Do You Want That Perfect 850 FICO Credit Score?
What is a FICO Score? FICO is short for Fair Isaac Corporation and they introduced an industry-standard for scoring consumer creditworthiness. The FICO score is calculated by 5 categories: Payment history, Amounts owed, Length of credit history, New credit and Credit mix. A FICO score ranges between 300 and 850.
Is a Credit Score Important?
When you purchase a car and need financing, they look at your FICO score to determine how much interest you will have on your loan. When you purchase a house or refinance, the interest you pay for your mortgage is again determined by your FICO score. When you sign up for a credit card, they look at your FICO score to determine whether or not you qualify and how much credit to give you.
It Starts With The Free T-Shirt
I remember when I was in college, our campus center had all of these credit card vendors sitting at popup tables with a stack of paper applications. I signed up for my first credit card and got a free t-shirt. SCORE!!! I would later find out that that free t-shirt led to the downfall of any credit I was trying to build. I had all this money and really no income to pay for it. They should have at least provided a class to educate students on financial responsibility.
Are You Credit Worthy?
Below is the ranges that determine how creditworthy you are…
- 850 – 800 Exceptional
- 799 – 740 Very Good
- 739 – 670 Good
- 669 – 580 Fair
- 579 – 300 Poor
FICO comes in different flavors or models: FICO 2 (Experian Data used by mortgage lenders), FICO 4 (TransUnion data used by mortgage lenders, FICO 5 (Equifax data used by mortgage lenders), FICO 8 (Most commonly used for Auto and Bankcard lending), FICO 9 (Newer version) and FICO 10 (Newest version. Each version may be used for a specific purpose so scores will differ depending on how high each FICO model measure a particular category or the data available within a specific credit bureau.
VantageScore is another credit score that was developed by the 3 major consumer credit bureaus: Equifax, Experian and TransUnion. The score is calculated amongst 6 main categories: Payment history, Age and type of credit, Percentage of credit limit used, Total balances and debt, Recent credit behavior and inquiries, and Available credit. The range for a VantageScore is the same as FICO (300-850).
Need Guidance?
Credit Karma is a free website / app that helps you manage your credit score and provides you a VantageScore 3.0. Personally, I have not used this but many people do. The goal is get you in the green in regards to credit score and this Credit Karma will help you if you need a guide.
How in the World…
So this just happened!
… and this is how I achieved it…
In anything you want to be good at, you need to ensure you are keeping track of your progress so you can make adjustments to get better. I have a mortgage and a personal loan but I have it set to autopay. This allows me to not miss a payment. Every so often, I will make extra principal-only payments 14 days after the autopay. This allows me to pay down debt faster. I pay off my credit cards twice a month. This allows me to keep that debt utilization low. I check my credit scores twice a month. This allows me to be credit aware. Your bank or credit card(s) most likely have a service that provides you access to see your credit score. For the most part, I pay my bills manually, so I know what I’m responsible for. I have a spreadsheet that I complete every time I pay my bills.
Free Annual Credit Reports
If you didn’t know, the federal law allows you to get a free credit report from all 3 consumer credit bureaus once a year. I usually get mine in the middle of January.
Credit Cards Tips
You don’t ever want your credit cards to close , so use them at least once year, even if for a $1. More and more credit cards are auto closing if they are inactive. This in turn ruins your credit age. So be mindful of that.
If you have a credit card that has an annual fee and you barely use it, you can ask them to downgrade it.
If you are thinking about getting new credit cards, start thinking about credit cards with cashback, awards and signing bonus’ tied to them. I’ll have a future article on this and how I leverage them.
The Secret Sauce
For the longest time I hovered in the low 800’s and teeter tottered at 840. Recently, I started applying for business credit cards. They were personal guaranteed. That means if my business fails to pay them back, then I become ultimately responsible for that debt.
In the last few months, I had 1 hard credit inquiry and 8 soft credit inquiries. I don’t know if that is what attributed and put me at the 850 mark but that’s the only difference. Those extra cards lowered my utilization by providing a higher total credit line. Maybe its because I added business credit to the mix of credit.
All in all, there is no secret sauce but there might be just one missing piece of the formula that needs to be tweaked.
Summary
If you want that perfect 850 credit score, keep utilization low by steadily increasing credit cards and credit limits and paying off all debt on time. In time, by being credit score aware and keeping up with your financial diligence, you too will achieve this 850 which is achieved by so few.
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