Today we're going to adult and discuss how to achieve an "exceptional" credit score. I wanted to share my tips (and mistakes) on trying to reach the perfect score (850) while at my highest rating thus far. PSA: as someone who is a perfectionist with nearly everything I do, I want to make it clear that achieving the perfect credit score is a goal I've set for myself and is in no way necessary for everyone's timeline.
You're probably a little skeptical as to how I made it this far. At the current age of 24, I can only go as far back as 2014, which would be the year I first impacted my credit with (sigh) student loans. However, I didn't truly start building towards my credit until 2016, which would be the year I opened my first credit card and financed my first car. To account for this, it's been nearly a 5 year journey towards the perfect score; and don't get me wrong, we're not nearly done yet, so here are some tips on what I've been doing throughout that time:
1. What's Your Score?
- Figuring out your credit score is a good start. You can't set a goal without a starting point! You can easily check for free on websites like Experian or Credit Karma for a head start on knowing your general score and what I've also picked up on lately due to the ongoing COVID-19 pandemic; you can take advantage of checking your report monthly, for free, on freecreditreport.com.
2. Open a Line of Credit
- This would be the first next step once you've figured out your score. For me, that was opening my first credit card in college and being approved with a line of $1000. Now I will say this, just because you have access to that money, and although it may be tempting, does NOT mean to use it all. I'd recommend a credit card as your first open line of credit because it's not a fixed amount as per se a loan so we're ignoring the fact that I already had student loans at the time. You can experience credit line increases, by requesting or being granted and a mixture of balances depending on how you use the card, which would benefit your score in more ways than one.
- In reference to tip #2, this is probably the biggest chunk when it comes to what makes up your credit score. I'm always strict on myself when it comes to making payments and scheduling them either early or ON TIME right before the due date as I've always hated the idea of being late. I've been told that using less than 30% of your credit limit is recommended. So, for example, in 2016, being approved for a $1000 credit limit meant that I shouldn't try to exceed $300 worth of expenses on that card.
- Look at utilization as part of your typical "bills." I'm sure you wouldn't want a bill slapped in your face that exceeded thousands of dollars, because at the end of the day, that payment will be due by either a minimum payment or in full and whether or not you're able to pay it will have a huge impact on your score.
- Increasing your line of credit is also a great way to work on utilization. For example, if I were to have a $300 balance on my $1000 credit line and I request for an increase of, say, an additional $500, I'll now instantly be fall to a 20% utilization due to a new $1500 credit line. Setting your own personal utilization rate below 30% can also make it easier for you to set boundaries on payments that you can genuinely and easily afford to pay back.
4. Derogatory Marks
- If you're not handling tip #3 very well, this can, unfortunately, lead to derogatory marks, which can stay on your report for up to 10 years. Having ZERO is the goal here for everyone! With this, I highly advise you to live within your means to avoid running into any collection notices, final payments, etc.
- With a combination of open accounts such as credit cards, car loans, mortgages, etc. You'll eventually create your own age of credit history. This is typically an average of all of your open accounts, and you'll improve over time by keeping the accounts open (and in good standing). A great standard for this is 7+ years. With that being said, I know it may be tempting to pay certain things off in full when you can afford to, such as your car per se. BUT I still suggest to keep making those payments! Instead, maybe make an even higher payment to be able to have that account paid earlier (with less interest added on), which looks better to lenders rather than paying it in full.
- A variety of accounts can show lenders that you're responsible. However, I would only recommend opening a new account if it makes sense for YOU. As this is another "bill", you'll be responsible for. I've taken my time with this aspect, which is why building credit can take years, and I'm still on the journey. The more accounts the merrier, but only if they're all in good standing so be sure not to take on too much that you can't handle.
Stay tuned as this isn't the say-all end-all here (I may just turn this into a monthly mini-series). I would love to give some more advice on budgeting your money, making financially responsible decisions, and overall living your life a tad less worry-free. We're striving for generational wealth over here!
xox.
krissy
