How To Reach A Perfect Credit Score (800+)

It’s unfortunate how many folks grow up without really understanding how credit scores work. The whole system can feel like a puzzle wrapped in confusion but nothing can be further from the truth.

Here’s the deal: you have a choice.

You can ignore your score and hope for the best, but that might leave you with a ‘not-so-great’ score like 500 or 600. And trust me, a low score like that can lead to all sorts of financial headaches.

Getting disapproved for exceptional credit cards, potentially missing out on that dream home, or getting stuck with sky-high interest rates on a mortgage or car loan.

Yeah, not cool… not cool at all.

But don’t fret because I’ve got five simple steps that can help you reach the promised land of an excellent credit score. And guess what? These steps aren’t just some random list.

They’re actually in order of importance and actionability. Together, they’ll give you a nice roadmap to reach that sought-after 800+ score.

Let’s get started.

Step #1: Prioritizing on-time payments.

Paying your bills on time should be considered non-negotiable, and it’s not just about avoiding those pesky late fees. It’s about safeguarding your credit score. Payment history is a pretty big deal, which is responsible for about 35% of your score.

Think of it this way… each credit account you have, gives you 12 chances a year to make an on-time payment. So, the more accounts you have, the more opportunities you get to build a solid track record. When it comes to credit cards, make sure you pay at least the minimum amount by the due date each month.

Pro tip: Paying off the full balance is even better because you avoid paying interest. Carrying a balance doesn’t do you any favors — it just drains your wallet. So, always make on-time payments your top priority and set up reminders or autopay to never miss a beat.

Step #2: Keeping your credit utilization low.

Here’s the scoop: Credit utilization is a key part of the “Amounts Owed” factor, which accounts for about 30% of your score, making it impossible to ignore along with making on-time payments.

It’s calculated by dividing your total credit card balances by your total credit limits. The rule of thumb is to keep your overall utilization below 30%, but we’re aiming for greatness here, so you should shoot for below 10%. The lower, the better!

Some folks wonder if it’s better to have single-digit utilization or zero percent utilization. Well… both are good, as long as you stay away from the 30% mark.

One way to keep utilization low is by prepaying your balance or getting higher credit limits. Remember, lenders want to see that you’re responsible with the credit you’ve been given, so keep those balances in check.

Step #3: Growing your length of credit history.

This one requires some patience because, unlike the first two steps, it’s not something you can change overnight.

Length of credit history makes up about 15% of your score and the longer the history you have, the better. So, the sooner you start building credit, the more time your accounts have to age and work their magic.

When it comes to credit history, there are two key aspects to consider: the age of your oldest account and the average length of your credit accounts.

Let’s break them down, shall we?

Firstly, the age of your oldest account holds significance. The longer you’ve had a credit account open and in good standing, the better it reflects on your creditworthiness. Lenders see it as a sign of experience and reliability in managing credit responsibly. So, if you have an account that has been open for several years, it will positively impact your credit score.

Secondly, the average length of your credit history is also important. It takes into account the age of all your credit accounts and calculates the average. A longer average credit history demonstrates stability and a track record of successfully managing credit over time. Lenders perceive this as a good indicator of your creditworthiness and are more likely to view you as a reliable borrower.

Now, again… it’s essential to note that you can’t change your credit history at the snap of a finger. It takes time to build a solid credit foundation. This is why it’s imperative to start building credit as early as possible. The longer you have accounts open and in good standing, the more opportunity they have to age and positively impact your credit score.

To grow your length of credit history, it’s important to maintain good financial habits. Keep your credit accounts open and active, while using them responsibly. Make timely payments, avoid maxing out your credit limits, and aim to keep a low credit utilization ratio. By doing so, you’ll establish a positive credit history that will continue to grow over time.

Step #4: Managing new credit.

It’s like a balancing act between short-term impact and long-term benefits.

When you apply for new credit, lenders usually do a “hard inquiry” on your credit report to check your creditworthiness. Now, these inquiries can cause a temporary decrease in your credit score, typically around five points or less. It’s because the scoring system sees the need for more credit as a bit risky.

But here’s the good news: the impact of a hard inquiry fades over time, especially if you focus on making on-time payments and keeping your credit utilization low on those new accounts. After two years, each hard inquiry will disappear and no longer affect your score.

Here’s an example.

Say you’ve had around six new credit accounts in the past two years, and each time you apply, your score takes a minor hit. But it quickly recovers, and your score is fluctuating between 750 and 800. Once you reach this range, going higher doesn’t provide much additional benefit, as you can already qualify for top-notch credit cards and the best interest rates.

So ultimately, it’s fine to endure those temporary decreases caused by hard inquiries and the impact on your average credit age. You know those inquiries will eventually head for the nearest exit, and your credit age will keep increasing.

Try this on for size when it comes to managing new credit: assess your situation and goals for your credit score in both the short and long term.

If you’re planning to apply for a mortgage soon and want your score as close to 800 as possible, it might be wise to ease up on hard inquiries for about 6 to 12 months before buying a house. You don’t want too many new accounts showing up on your report and making your credit age appear younger, which could impact your ability to secure the best interest rates.

On the other hand, if you’re new to building credit, a few spread-out hard inquiries in the first two years won’t have a significant negative impact. As you establish a solid credit foundation, those inquiries will quickly fall off, and your credit score will rise quite nicely.

Step #5: Developing your credit mix.

Your credit mix serves as the remaining 10% of your credit score and tells lenders that you’re responsible for managing diverse credit accounts, like credit cards, auto loans, and mortgages.

For instance, when the time is right for me to pursue a mortgage or consider different types of credit (such as a personal loan or a business line of credit), these additions will naturally enhance the diversity of my credit mix. By making timely payments and demonstrating responsible credit management across various account types, my credit score benefits from the positive impact of a well-rounded credit portfolio.

Conclusion

You don’t have to follow the exact path I’ve taken or feel obligated to acquire several credit cards. Everyone’s financial journey is unique, and what matters most is finding a strategy that aligns with your goals and preferences. If you prefer to maintain a simpler credit profile with fewer accounts, that’s perfectly fine too.

While credit mix isn’t the highest-priority factor in reaching an 800 credit score, it still holds weight and shouldn’t be disregarded. As you focus on improving other aspects of your credit, such as payment history, credit utilization, and length of credit history, your credit mix will naturally develop and contribute to your overall score.

By considering the 5 steps I’ve discussed today and allowing them to work together harmoniously, you’ll be well on your way to achieving a killer credit score.

Remember to be patient, make knowledgeable decisions, and tailor your credit-building approach to your specific circumstances. Your financial well-being and credit score depends on it.