I read an article the other day that talks about how the benefits of having a 760 credit score and a 840 credit score are exactly the same. I thought that this was interesting because I also found that there really isn’t much of a difference once you reach the top tiers of credit.
I have had the “blessing” of having an extremely low credit score and all the way up to a 775. My credit score today sits around a 760 and I barely even look at it any more.
The reason why I don’t look at any more is because I can qualify for all of the loans and credit cards that I could possibly want. I no longer have the urge to improve my credit because there isn’t really much improvement left to do. Also, the ways to improve my score have gotten harder to come across as well. The biggest way for my score to go up now is to pay off debt or improve credit history, both of which take either a lot of money or a lot of time.
In this article, I’m going to talk about how I got my credit score to 760 at the age of 21, how you can improve your own credit score, and why I believe that 760 is the new perfect score.
Let’s get started.
My Credit Score
A few years ago, I was a sophomore in college and I was interested in buying a new car for personal reasons. This led me to looking up all sort of ways that I can buy this new car and it all led back to having to finance an auto loan for a five to six year period.
Every single time I looked at different people to pre-approve a loan, they all came back to my credit score.
At the time my credit score wasn’t terrible, however, it definitely could have been better. I believe that it was standing around the 630 range, which put me at risk for higher interest rates, and higher interest rates is what I got. I ended up financing that car with a $12,100 loan at an insane 15% interest rate. Needless to say I have paid that loan back since then once I realized how much money that I was simply giving away in interest payments.
That was a long time ago in relation to the road I have traveled since.
Below is a screenshot of what my credit score looks like today.
Much better! I will talk through the factors that led to my credit score increase here soon.
How to improve your credit score
There are 6 big factors that go into improving your credit score. These factors are credit utilization, payment history, derogatory marks, credit age, hard inquiries, and total accounts. Let’s go in depth into each one of these to figure out how to use them to increase your score.
This is the amount of money that you have spent in relation to the total amount of credit that you have available. The more credit that you utilize that larger the negative impact that it will have on your score.
This was one of my biggest flaws early on. When I was looking to buy my car, I had already maxed out all of my other credit cards basically. This probably sent a sign to the lenders that I could not manage my money efficiently and scared them away from lending to me at first. To combat this risk, the company that finally approved the loan had a large interest rate on it for the extra risk involved.
Today, I like to keep my credit card utilization at or below 5% a month. I do this by paying off all of my cards at the end of the month and not buying things that I can’t afford.
This is basically the amount of on-time payments that you have on your credit report. This is a massive part of your score because lenders want to know if you can make your payments on time. Even if you can’t pay off your cards in full, you should always make the minimum payments. Even one late payment can have a huge negative impact on your credit report.
Below is a screenshot of my payment history.
This is if you have had any items sent to collections or in default because of failure to payment. This can negatively impact your score a great deal, but it also easy to get these items off of your credit report if you talk to the lender.
I was able to get at least 3 derogatory marks off of my fiancee’s credit report because I contacted the lender and set up a payment plan for unpaid medical expenses.
This factor is the hardest to overcome because of one simple reason, time. There isn’t much you can do to improve your credit age besides close unneccessary NEW accounts. However, if you don’t have any of those than you simply have to wait and wait and wait until your credit age improves on its own.
Total accounts is as simple as it sounds, the total number of accounts that you have opened or have had opened at any given time. The more accounts that you have, and the more diversified you are, the better. This sends a sign to lenders that you can responsibly handle multiple accounts and have a history of paying back all of them.
I don’t have a ton of accounts open now, however, I am sure this number will increase as I add a mortgage to my personal liabilities.
Hard inquiries are one of the areas that I struggled on heavily when trying the improve my credit score.
It is sort of a paradox in that you have to lower your credit score temporarily in order to get it to improve.
Hard inquiries are just that. It is a temporarily lowering of your credit score from a lender “running your credit” to see your creditworthiness. This process is necessary for taking out any loan or opening any new credit cards.
At one point, I had about 12 hard inquiries on my credit report.
Hard inquiries come off of your credit report after two years time. This is the reason that my number of inquiries went down so much. I simply waited.
If you enjoyed this article, check out some of my other articles about investing and entrepreneurship on The Centennial Investor, and join our free Facebook group where I share my best investing practices with a team dedicated to learning more about being financially free.
As I am not a Certified Financial Adviser, any information that you read here is purely for educational and entertainment uses only. For professional legal advice, contact a CFA.